One of the more aggravating aspects of our multi-jurisdictional regulatory system is the cumbersome process for the inter-provincial registration of brokers.

In addition to the direct costs of fees paid to multiple provincial commissions and administrators, significant indirect administrative costs are incurred to ensure compliance with registration and registration updates for a vast array of categories and requirements in 13 jurisdictions across the country. It is also costly to monitor the hydra-headed system to comply with inevitable changes in standards and requirements. The electronic national registration system has not made life easier.

These problems have worsened as an increasing number of brokers are required to register in multiple jurisdictions in response to greater employment mobility and a growing number among their clients of retiring baby boomers who move to another part of the country. Investment dealers are not the only registrants who face these problems. Mutual fund registrants and investment advisors are also caught in the same Gordian knot of inter-provincial registration when serving clients across the country.

The Canadian Securities Administrators’ passport system, introduced a year ago, gave hope that improvements to the broker registration system would soon be forthcoming. Although Ontario opted out at the beginning, the appointment of a new Ontario Securities Commission chairman, the Crawford Panel’s endorsement of the passport system and Ontario’s observer role suggested that, sooner or later, the province would join. Optimism has since waned, partly because Ontario has remained outside the passport initiative. Moreover, amending securities laws in the 12 remaining jurisdictions probably will be a lengthy process. To complicate matters further, the CSA has embarked on a comprehensive registration reform project that will enhance the efficiencies of the eventual passport system and, among other issues, streamline the myriad registration categories.

The complexities inherent in the passport model are significant and, for the most part, unavoidable. But the registration project, proceeding concurrently, magnifies the management challenge and signals an even longer process, given the need for consensus on a number of significant issues, including Ontario’s proposed client relationship model. Large complex projects demand consensus-building among CSA staff and ministerial officials, which may require considerable energy and resources to be spent on the process, and blur the focus on outcomes.

It doesn’t have to be like this. The CSA could focus on aspects of the passport model that will produce immediate benefits for the investing public, intermediaries and the marketplace. From the perspective of registrants, the crown jewel in the passport system is the so-called “mobility exemption”. This exemption attempts to address clients moving from one jurisdiction to another. It was designed for limited applicability, with eligibility restricted to no more than five clients in any jurisdiction investing no more than $5 million in aggregate per broker, and 10 clients investing no more than $10 million in aggregate per firm, from outside their original home jurisdiction. Although the exemption has no practical value as the costs of monitoring compliance outweigh the benefits, it may hold the key to mitigating some of the costs and inefficiencies of inter-provincial registration.

The mobility exemption deserves a second look. Under it, brokers are exempt from registration in participating provinces outside their home jurisdiction. The second jurisdiction still retains authority over broker activities in that jurisdiction, but relies on the registration file in the home jurisdiction. The second jurisdiction does not delegate authority to the home jurisdiction, but accepts its responsibility for registration of the broker and firm.

The commissions can make real inroads into the inter-provincial registration morass by removing numerical and monetary restrictions on the mobility exemption. This would enable brokers to access clients outside their home jurisdictions without the cost of registration in each province and territory. Commissions would have access to the registration records in the primary jurisdiction and both jurisdictions would have disciplinary authority over activity in their own province or territory. All this could happen quickly as the mobility exemption already has buy-in from almost all the CSA jurisdictions. Since delegation of authority is not required, the mobility exemption does not require legislative amendments. Ontario could participate while remaining committed to a single national regulator.

The benefits of an unrestricted mobility exemption across all CSA jurisdictions would immediately lower administrative costs to investment dealers and result in lower costs to investors. It would also give investors greater choice in selecting an investment advisor. As a fully harmonized registration system across the country would entail numerous legislative amendments to provincial and territorial statutes and agreement on rules and registration categories among the jurisdictions, it would take considerable time. In the interim, investors and capital markets could reap the immediate benefits of greater efficiencies in the broker registration process, if the CSA grasps the nettle and implements a robust mobility registration exemption for investment dealers. What are we waiting for? IE

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