Speaking to the Canadian Club in Toronto today, chair of the Investment Dealers Association of Canada Brian Porter, defended the efficacy of self-regulation, and proposed improvements for the future.

Porter argued that self-regulation is the best way to strike a balance between overly intrusive and overly permissive regulation. “The model certainly meets the most important criteria in a time of rapid change-flexibility and responsiveness to innovation,” he said.

The self-regulators in the Canadian securities industry, he noted, are national, avoiding the provincial fragmentation which grips the securities commissions; they have eliminated the conflicts of market ownership; they face public oversight to ensure they defend the public interest; and they have ramped up enforcement, with the IDA’s enforcement budget growing 90% over the past five years. However, he did not attempt to reconcile the persistent criticism of the IDA’s dual role as both self regulatory organization and trade association.

Porter did make some other suggestion for improvements. “We should focus to a greater extent on the regulatory principles we believe in, rather than the specific rules,” he said. “By making regulatory principles clear-and buttressing that with robust enforcement-we can push compliance down to registrants and marketplaces.”

He also stressed the importance of risk-based sales compliance and effective enforcement. “It is important to always keep in mind that the bedrock of effective regulation and investor confidence is enforcement-tough, but fair, enforcement.”

Finally, he argued, rule-making should be grounded in thorough industry knowledge and analysis. “It is vital to collect the data, conduct the surveys, and carry out the analysis,” he said.

“Self-regulation has played a central role in the regulation of the securities market in North America and many other developed markets around the world,” Porter concluded. “It builds on core strengths, including practical understanding of how regulations operate on the ground, and the ability to achieve regulatory objectives effectively and efficiently, with minimal collateral damage.”