The Canadian Securities Administrators’ (CSA) goal to reduce the regulatory burden on the investment funds industry is both desirable and commendable. The real prize, though, is not just reducing the regulatory burden, but controlling the cost of future regulation.
Previous initiatives to reduce the regulatory burden focused on identifying and eliminating overlapping, outdated or duplicative rules. This is important work that should be considered normal course for the CSA. We can all agree that regulators should always be looking for opportunities to eliminate unnecessary rules.
However, a line-by-line examination of the rules will do little to lighten the current cost of compliance and will do nothing to curb its future growth. The higher the costs imposed by regulation, the less competitive our markets will be compared with other jurisdictions.
Regulation imposes costs to the regulatory agency to administer the requirements; to firms that must comply with the requirements; and to the economy from lost opportunities, reduced competition and reduced economic efficiency. Increasing regulatory requirements within firms also often mean that more resources have to be allocated to meeting compliance needs — often at the expense of driving new innovation. Ultimately, all of these costs are borne by investors.
The industry is committed to promoting a strong, stable sector in which investors’ interests remain paramount. Controlling the cost of regulation doesn’t involve deregulation, nor does it require a choice between investor protection and competitive markets. In fact, effective regulation is necessary to maintain market integrity and globally competitive capital markets.
Controlling the cost of regulation by introducing systemic changes to the oversight of the rule approval process, the rule development process, the rules themselves and to the CSA’s electronic filing systems together would control the growth of regulation, improve regulatory efficiency and reduce the regulatory burden. It’s time to think big.
Organizational culture is an important consideration in controlling the cost of regulation. Very little will be accomplished if the institutional culture is investor protection at any cost. For regulatory change to be meaningful and impactful, preserving investor protection must be balanced appropriately with ensuring market efficiency and competitiveness.
The federal and Ontario provincial government recognize this, as reflected in their autumn economic statements, which prioritize reducing the regulatory burden and considering economic and competitiveness impacts when designing and implementing regulation.
There’s an opportunity to bring the industry to the table to consult on strategies and creative solutions that will really make a difference. Collaborating with the industry to leverage new technology as much as possible also makes sense as industry is fully engaged on this issue and would welcome the opportunity to participate.
Institutionalizing systemic changes to the policy oversight and development process, making some big policy changes and leveraging technology hold the promise of controlling the cost of regulation both today and into the future.