The canadian securities administrators have undertaken a number of projects in the past year that have the potential to improve fundamentally the infrastructure of the Canadian securities industry’s regulatory environment. And although the initiatives retain elements of the territoriality that mark the existing system, they represent a significant movement to a simplified and consistent regulatory structure.

One of these initiatives is Multilateral Instrument 11-101, a passport regime for issuer disclosure documents and broker registration. The proposal is a constructive effort under provincial jurisdiction to streamline the regulation of financial activities that have become national in scope.

MI 11-101 proposed a “mobile registration exemption” to enable brokers registered in one province to carry on business with clients in another without registering in that second jurisdiction. The proposal’s effectiveness is limited due to restrictions on eligible clients in outside jurisdictions. However, it represents a shift from parochial to national thinking.

Even though the Ontario Securities Commission has decided not to participate in the passport model, this decision probably has more to do with priority given to a national regulator model than the initiative itself.

In March, the CSA decided not to proceed with Multilateral Instrument 52-111 and instead proposed MI 52-109. This proposed set of regulations replaces the need for a formal audit of internal controls for financial reporting with CEO certification of the controls. This will significantly reduce compliance costs, lifting a heavy regulatory burden from Canadian companies. This decision will draw interest from international companies to list on Canadian stock exchanges, given the disincentive of the Sarbanes-Oxley legislation for these companies to list in U.S. equity markets.

And recently, the CSA requested comments on National Instrument 62-104, a proposed national set of rules to harmonize the regulation of takeover bids and issuer bids throughout Canada. This streamlined and harmonized regime will facilitate corporate restructuring in Canada, a process integral to the efficiency and competitiveness of Canadian business.

What are the reasons behind this reinvigorated and more consonant CSA? Why has there been an unprecedented succession of constructive policy measures in the past year?

First, new leadership at three of the four large commissions has injected a new energy and resolve to make headway on reforms and harmonization. Jean St-Gelais, as CSA chairman, has accumulated the experience and confidence to lead the CSA agenda. The appointment of respected securities lawyer David Wilson as chairman of the OSC is a huge shot in the arm for the CSA. Bill Rice brings his experience as a respected securities lawyer to the Alberta Securities Commission. And, finally, B.C. Securities Commission chairman Doug Hyndman brings a wealth of experience and insight to the policy-making process.

Second, the rapid growth of institutional markets and the wealth-management business in Canada — reflecting a sustained four-year bull market — underscores the need for more streamlined approval of interprovincial public offerings and exempt financings, greater flexibility in broker registration to serve an increasingly mobile client base, and close co-operation on new product and market developments to ensure a high standard of market integrity.

The recognition that Canadian markets are competitive alternatives through which small- and mid-cap international companies can issue shares and raise capital, particularly in the resources sector, provides additional incentive to improve the regulatory climate. The historical depth of our capital markets and related infrastructure for small and mid-sized businesses, the attraction of an appreciating currency and consistent high standards of integrity that underpin the vitality of junior markets are positive features of the Canadian markets.

Finally, the flurry of initiatives in recent years — mostly focused on a national regulatory structure to achieve uniformity and efficiency — have telegraphed a widespread disenchantment with the multi-layered provincial system and impatience with the dawdling pace of provincial reform. The Crawford blueprint proposing a national regulator managed by provincial governments is the latest of these initiatives, but not the last.

CSA efforts at harmonization ironically lead inevitably toward a single national regulator. An effective passport model for broker and securities registration achieves more congruent rules across jurisdictions and ultimately gravitates the process toward a single Securities Act as large commissions become the designated home jurisdiction for the majority of brokers and reporting issuers.

Viewed from this perspective, the Crawford blueprint makes a useful contribution prescribing a balanced decision-making process among participating jurisdictions. The smaller securities commissions, notably those supporting the passport system to promote market efficiency, may inevitably press for a national framework along the Crawford lines to achieve greater influence in the system. IE

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Ian Russell is president and CEO of the Investment Industry Association of Canada.