B.C. is introducing new rules this month to make the securities regulatory approval process easier.
Small Business and Economic Development Minister John Les said he will introduce legislation that will eliminate more than 7,000 securities regulations while enhancing consumer and investor protection, and giving investors and companies more flexibility to raise money.
“We have a securities environment that is a very prescriptive environment today and we would like to move to a less prescriptive but more results-oriented securities regulatory system,” said Les.
The B.C. Securities Commission would still govern securities activity but the system will be more transparent and accountable, said Les.
The move comes as B.C. and Alberta oppose a call by federal Finance Minister Ralph Goodale and Ontario Management Board chairman Gerry Phillips for the provinces to surrender regulatory control of the securities industry to one national regulator.
Goodale and Phillips, an Ontario cabinet minister who ranks as that province’s third-highest official, argue that one regulator is necessary in order to help Canada remain competitive in the global marketplace and prevent other jurisdictions from luring away Canadian firms.
Goodale contends that one regulator will also help avoid duplication, inefficiency and waste that result because companies have to make regulatory applications in 13 different provinces and territories. Under the Constitution, the provinces control securities.
Ottawa has obtained a legal opinion that says it could unilaterally take over securities, but Goodale is reluctant to do that without provincial support.
“We’re not interested in having these things imposed on us,” said Les, whose portfolio includes securities.
B.C., Alberta and other western provinces favour a passport system whereby approval in one province spells automatic approval in other provinces. Ontario wants a one-regulator system because, as home to most of the companies listed on the Toronto Stock Exchange, it already acts as a de facto national regulator.
Les said he would like to see B.C. and other provinces have the opportunity to develop new ideas and “potentially show some national leadership” so that a better system develops, over time, across the country.
Even with restrictive and rigid systems, he said, billions worth of securities fraud has still occurred while companies followed the rules – for example, in the Enron case.
By moving to a national regulator right away, argued Les, provinces will create the securities equivalent of the national gun registry. Governments won’t pay sufficient attention to the unique markets across the country and will impair their ability to develop “leading-edge” securities regulation.
“Whenever we deal with national regulatory bodies driven from Toronto or Ottawa out, our experience, particularly in Western Canada, has not been a happy one,” said Les. “I’m not at all convinced that there is appropriate sensitivity in Ontario to Western Canadian or British Columbian securities markets.”
B.C. and Alberta oil and gas companies, he added, want to be careful about moving to a “holus-bolus” Ontario Securities Commission-regulated type of environment. Many smaller companies in B.C. and Alberta could benefit from a regulatory environment that allows them to operate in a passport system with people they know, he contended.
Les said a national regulatory system can be introduced over time, but “how we get there is what’s important.” By developing the national system in steps, he said, various regions would have appropriate input into the new rules and produce something that more closely resembles a national system.
The passport system, he claimed, is a unique and useful model that allows governments to recognize each other’s securities legislation and move toward a more integrated national system, which incorporates best practices from all provinces.
“The passport system is at least a start and it would be an open question for the future as to how quickly it could move toward a national regulator,” said Les.
Alberta Revenue Minister Greg Melchin, chairman of an inter-provincial committee that is examining securities regulations, said the passport system will cater to both large- and small-cap companies.
“You can’t overlay the high burden of regulatory compliance of the big companies onto all of these small markets,” said Melchin, adding provinces should still have control over what happens in smaller markets.
Melchin said that, except for Ontario, all of the provinces on his committee – Alberta, B.C., Saskatchewan, Manitoba and Quebec – oppose the idea of one national regulator, and he believes the Maritimes and Territories share their views.
“I actually agree that there are some advantages to a single regulator,” said Melchin, adding the provinces are trying to find the model that works best under Confederation.
“What I disagree on is that there is actually a utopian solution. I disagree that even a single regulator has all positives and no negatives,” said Melchin.
The provinces, he said, are willing to examine the possibility of switching to a single regulator, but they won’t approve the plan without doing a lot more homework.
Under the passport setup, he said, firms will only have to deal with one securities authority.
“It will mean that when they go out and have to do their quarterly filings and their annual filings or they want to raise new money, they can deal with the Alberta Securities Commission,” said Melchin.
“They can get all those approvals done by the people they know that are close to where their headquarters are. That would give them approval for the whole country. It would mean they wouldn’t have to go to B.C., Saskatchewan, Manitoba, Quebec, Ontario and the Maritimes to file all those 13 filings.
“You can just think of the delays sometimes. It’s not necessarily intentional. People get busy and maybe the paperwork gets piled up and something that’s routine takes weeks to get accomplished (when) you should be able to get it done in a day or two.”
Melchin contends that the single regulatory body would be a national body, rather than a federal agency, and operate collaboratively with the provinces – similar to the Canada Pension Plan.
“Alberta is a great place to come and invest and do business, and we want to see that we retain that Alberta Advantage,” said Melchin.
The minister dismissed the idea that one regulator would reduce companies’ costs.
“My rebuttal to that is: Give me one example of one federal program that is actually run less expensively than what the provinces do,” said Melchin, adding one-regulator systems in the U.S. and other countries are more expensive than the Canadian framework.
According to a recent Alberta Securities Commission study, Alberta has the second-highest distribution of market capital – $210 billion or 18 per cent – after Ontario ($531 billion or 45 per cent). The oil-rich province has the second-highest number of companies on both the Toronto Stock Exchange, behind Ontario, and the TSX Venture Exchange, behind B.C.
The report on the ASC’s study says Alberta should have more say in the development of Canadian securities rules.
But the securities industry does not agree with the stance taken by the provinces. During a recent speech to the Calgary Chamber of Commerce, David Wilson, vice-chairman of Scotiabank and chairman and CEO of Scotia Capital, called for one national regulator.
“The reality is that we need one single Canadian regulator that serves both the users of capital – our businesses – and investors of capital,” said Wilson.
He charged that Canada needs a regulatory framework that provides Canadian firms with a regulatory environment that meets global best practices, protects large and small investors – whose confidence can make or break the system – and offers the most efficient means of exchanging capital between investors and businesses.
He suggested that Canada’s long-time expedited access to American capital markets and exemption from some Securities and Exchange Commission regulations through the U.S. Multi Jurisdictional Disclosure System could be at risk because many American market players – including some in the SEC – feel that Canada’s regulatory system has had difficulty keeping pace with global best practices.
The ASC study also compared B.C.’s and Alberta’s capital markets. It found that although Alberta and B.C. are known for having strong junior markets, Alberta also has a strong senior market. The aggregate market capital of Alberta-based public companies is three times larger than B.C. public firms’ market capital.
In early March, the Association for Investment Management and Research (AIMR), which represents more than 9,000 financial analysts across Canada, released a study showing that three-quarters of respondents would like to see the current system replaced with a single regulator. Several business organizations, including the Canadian Bankers Association, Canadian Chamber of Commerce and Canadian Council of Chief Executives, have backed the AIMR’s call for one national regulator.
“The importance of this issue to Canada’s financial markets, economy and long-term competitiveness should not be underestimated,” said David Yu, co-chair of AIMR’s Canadian advocacy committee in a news release. “That is why these leading organizations have come together to speak with a united voice on this issue . . . The time for action is now.”
