Canada needs more a more efficient system of securities regulation with tougher enforcement of the rules to remain competitive Bank of Canada Governor David Dodge said today.

In a speech to a joint meeting of the Empire Club of Canada and the Canadian Club of Toronto, Dodge said that future economic growth in Canada depends on improving the efficiency of Canada’s financial system, including financial markets and financial institutions. “If we don’t make this effort, the Canadian economy will suffer,” he said. “The status quo won’t cut it.”

“Efficiency dictates that Canada should have uniform securities laws and regulations, based on principles that apply to everyone,” he said. “Some have taken this idea further and advocated for a single, pan-Canadian securities regulator. I’m not here today to weigh in on that debate. But I do want to stress that, whatever the structure of the regulator, we must strive for efficiency in regulation — the best regulation, at the lowest cost.”

He encouraged the provinces to make the Uniform Securities Transfer Act a priority, and to make progress towards straight-through processing.

Dogde also called for tougher enforcement, saying, “There is a widely held perception that Canadian authorities aren’t tough enough in punishing fraud and enforcing insider-trading and other rules. That’s why it is encouraging to see that steps to toughen enforcement are being taken, by provincial securities commissions, by the Investment Dealers Association, by law-enforcement agencies, and by the federal government. These kinds of steps to improve enforcement must continue.”

As for regulation itself, Dodge said that the key issue is to reduce what economists call “information asymmetries” as much as possible. “What that means is that our regulatory framework should aim — in general — at having market prices reflect all relevant information, and that all parties to a transaction should have fair access to that information. We can enhance efficiency by reducing information asymmetries up to the point where the cost of additional compliance would outweigh the benefits,” he said.

“Dodge noted that what constitutes relevant information differs depending on the size and complexity of the firm. He added that disclosure regulations should recognize this. “The principles at the heart of Canada’s regulatory framework must be as good as, or better than, those of any other country. But keep in mind that companies considered to be mid-sized in terms of capitalization in Canada would be regarded as micro-capitalized by international standards.”

Dodge also addressed the issue of price transparency in markets. He reported that the Bank of Canada is conducting research and working with market participants and regulators on ways to increase transparency in Canadian markets. “It is important that we get transparency and regulation right,” he said.