Dreaming up ways to reform Canada’s wonky regulatory system is always the easy part. And a wide-ranging report from a blue-ribbon task force is no exception; it’s chock full of good ideas.

But the hard part is actually implementing change. Without the authority to implement any of its recommendations, this report will probably join all the others collecting dust on the shelves of Bay Street offices.

More than a year ago, the Invest-ment Dealers Association of Canada took some of the money it had collected in the mutual fund market-timing case to finance a task force to examine the content of securities regulation in Canada. The effort was conceived as a fresh take on the subject of regulatory reform. As numerous efforts have focused on the structure of the system, it was hoped that by targeting content, the wonky structure of the Canadian system would be rendered less relevant.

To that end, the task force, which was chaired by Tom Allen, senior partner at Ogilvy Renault LLP in Toronto, delivered a report in early October that offers 65 recommendations for reforming the current system. It aims many of its recommendations at the perceived weakness of enforcement in Canada.

It proposes a new, more dynamic electronic disclosure system. It calls for rigorous cost/benefit analysis of all regulatory intervention in the markets, a new system for allowing large issuers to raise capital quickly and a new approach to hedge fund regulation, among other things.

At the news conference to release the report and début a prototype of its interactive disclosure model, Allen said that the task force believes that if its recommendations are implemented, the “made-in-Canada discount” that the current inefficient system creates could be transformed into a “made-in-Canada premium.”

To get there, the report imagines nothing less than a sweeping overhaul of many aspects of capital markets regulation.

On enforcement, it calls for:

> the creation of a co-operative national program for co-ordinating enforcement among securities regulators, self-regulatory organizations and law enforcement agencies;

> numerous changes to the operation of the RCMP’s integrated market enforcement teams;

> the introduction of a “senior independent review officer” to assume authority over investigations, both at the regulators and the IMETs;

> separating the adjudication function from the securities commissions and moving it into an independent tribunal; and,

> the creation of a separate capital markets court to hear cases concerning regulatory offences and, possibly, civil liability cases.

The report also seeks to improve investors’ access to redress, proposing that regulators seek restitution for investors in the courts or before their own tribunals, or that courts be empowered to order restitution.

The report also recommends that the U.S. concept of a “well-known seasoned issuer” be introduced in Canada to give these senior companies quick access to capital; that SEDAR’s functionality be improved; that delivery requirements be abolished, and issuer disclosure be taken entirely online (apart from IPO prospectuses); and, that disclosure filings adopt interactive formats.

The report also calls for the creation of a regulatory framework for hedge funds that would treat them more like mutual funds, including introducing manager registration requirements, so that these funds can be made more widely available to retail investors.

Finally, the report recommends that investor education be given a national profile and that a national co-ordinator be appointed to oversee it.

These recommendations all try to avoid the issue of regulatory structure, yet it remains the elephant in the room. Although no one wants to tackle that beast, it is somewhat futile to try to separate content from structure.

The issues of content and structure are inexorably linked for a couple of reasons. One, a good number of the ideas in the task force report call for national initiatives — for example, in enforcement and investor education. Two, the report also calls for some dramatic systemic changes — notably in the disclosure and market access systems and the treatment of hedge funds, which would only be welcome if they were adopted in every jurisdiction.

Indeed, the B.C. Securities Commission has already tried to introduce dramatic reform in content. It spent a good deal of time crafting new securities legislation that would move away from detailed rules and toward a more streamlined, principles-based system.

Many in the industry loved the ideas the BCSC presented, but they wanted harmonization and consistency among the provinces even more. Faced with a system comprising one innovative authority and 12 inert ones or a system of 13 sluggish ones, the industry made it clear that it would rather have 13 regulators more or less on the same page. The same challenge faces the task force’s ideas.

@page_break@Structure and content may be distinct conceptual issues, but they remain indivisible from a practical perspective. And, on that count, there seems to be little impetus for wholesale reform. Ontario remains committed to the idea of a single national regulator, while the rest of the provinces are continuing to move ahead with a passport system. While there have been signs of increased co-operation among the provinces, it’s not clear that there’s enough momentum to implement sweeping changes.

Notwithstanding the history of such efforts, Allen hopes that this report will be different and that it will drive genuine reform. At the news conference, he said that the task force wants the report to be read as a “serious call to action” for policy-makers, not as just another compendium of recommendations.

This stance is echoed by the securities industry’s lobby group, the Investment Industry Association of Canada, which welcomes the report. It says many of the recommendations “would make a significant contribution to improving the competitiveness, efficiency and integrity of the Canadian capital markets. [The task force report] provides clear direction to regulators. The IIAC urges the Canadian Securities Administrators to give serious consideration to the recommendations and analysis in the task force report.”

IDA president and CEO Joe Oliver adds: “[The task force report] provides those charged with ensuring the integrity and competitiveness of Canada’s capital markets with an unprecedented body of original and leading-edge research, data and analysis by Canadian and in-ternational experts.”

The report certainly does provide an unprecedented body of research — in volume, if nothing else. The main report and recommendations constitute a couple of hundred pages, but the background research that was commissioned by the task force adds a couple of thousand pages to that. Along with the extensive research, the group also received written submissions and entertained oral presentations in a series of cross-country meetings.

“Our objective in sponsoring the task force was to promote informed debate and dialogue,” Oliver says, adding that the task force hopes that players in the capital markets, both in Canada and abroad, find the work valuable.

So far, the response to the report from those that have the authority to act on it has been predictably noncommittal. “We welcome the report of the task force and view it as a constructive document that will add to the debate on securities regulation in Canada. We will review the report carefully and consider its contents in light of this debate,” said CSA chairman Jean St. Gelais in a statement following the release of the report.

Gerry Phillips, minister for government services in Ontario (who is also responsible for securities regulation in the province) didn’t mention the task force or its ideas in remarks to the Economic Club of Toronto the day after the release of the report. Instead, he reiterated Ontario’s call for a national regulator and broached the idea of a more principles-based approach to regulation — making it clear that these are the province’s priorities for reform.

“A common regulator, with a single set of laws and a single fee structure, would be a significant step toward making our markets the best in the world,” Phillips said in his speech. “More principles-based regulation would make our system more user-friendly and enhance Canada’s appeal to international business. These key elements will ensure that our regulatory structure can respond to market developments with innovation and efficiency.

“What we’re hoping to accomplish would make Canada the best place in the world to invest and raise capital,” Phillips added.

The issues of facilitating innovation, increasing efficiency and attracting capital are exactly what the task force aims to address in its report. But it remains to be seen if its approach to these issues will generate support from the government, too. As long as Ontario is the only interested province, it’s hard to imagine the task force’s recommendations enjoying much success.

Allen, however, is optimistic. At his news conference, he admitted that the task force can’t do much to ensure that its recommendations are adopted. But, he insists, they have a brighter future than the typical regulatory reform report.

“I have every confidence that so many people across this country are engaged in these issues that I don’t think this report will experience the same 10-year gestation period that other reports have had,” he says.

The problem, of course, is that while those people may all be working on the same issues, that doesn’t mean they’ll come to the same solutions. And when they do agree to a solution, that solution is still administered and enforced by multiple authorities, with different approaches, interpretations and priorities.

Market players can talk all they want about changing the content of regulation, but they can’t escape the spectre of its needlessly complex structure. IE

FOR MORE ON THE TASK FORCE
REPORT, SEE PAGE 8