Common regulator is workable

Your suggestion that a “critical mass” of those provinces willing to delegate authority to a common regulator would lead to a fragmented regime is overly pessimistic, and fails to take into account the way in which plans for such an institution would go forward.

The federal government and those provinces willing to participate would obviously not proceed without a “critical mass” – defined to include at least British Columbia, Alberta and Ontario. This objective is the likely reason for prolonged discussions in reaching a consensus.

But it is important to keep in mind that the participation of these three provinces would allow a common regulator to embrace jurisdictions with almost 90% of the market capitalization of listed Canadian companies, and the vast majority of trading and financing activity – even if all 10 of the remaining provinces and territories declined to participate, which is highly unlikely.

Indeed, it is far more likely most of the remaining provinces would join. Rather than being fragmented, this consolidated domestic marketplace would make regulation far more uniform than under the present regime, offering potential for increased regulatory efficiencies and more effective enforcement.

Your editorial states that “regulatory accountability would be even more uncertain” with a common regulator.

On the contrary, accountability for securities regulation would be clear, with the staff of the common regulator reporting to a commission of executives appointed from almost all regions of the country.

There would also be a council of ministers representing the responsible ministers of the federal government and participating provinces.

Accountability would also be strengthened under a common securities regulator.

The provincial commissions have introduced many national policies and regulations over the years – from measures related to continuous disclosure to corporate finance and market structure – to achieve greater uniformity across jurisdictions.

However, no individual securities commission is accountable for the impact of these policies and regulations on an efficient and well-functioning national marketplace. A common regulator would fill that void.

Furthermore, no single provincial commission is currently held accountable for the inefficiencies and higher cost of capital that can arise from the interference of differing provincial rules related to financings distributed in the national marketplace. For example, equity offerings, particularly those of small and mid-sized companies, launched in the prospectus-exempt markets have increased dramatically in recent years.

The Ontario Securities Commission estimates that the size of the exempt market in Ontario has surpassed $85 billion – more than twice the value of pubic equity capital raised nationwide.

Although this financing activity has evolved from targeting local and provincial markets to become national in scope, the eligibility requirements for these prospectus-exempt financings differs across provincial jurisdictions.

These differing requirements create complications and inefficiencies in the financing process that raise the cost of capital for these small businesses. Standardized eligibility requirements in this growing area would lead to a market that is less fractured. There are many similar examples.

Finally, a common regulator would provide Canada with the opportunity to establish more transparent and higher standards of regulatory performance than are now in place.

Ian Russell

President and CEO of the Investment Industry Association of Canada.

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