For the past several years, Canada has witnessed widespread debate about the virtues of a common securities regulator, with proponents arguing the benefits of a more cost-effective and responsive regulatory system -- one giving strong voice to Canada in international deliberations.
These arguments make good sense for Canada, but what about Manitoba? Does a common regulator make sense for us? And will it make a difference, given our small capital market and economy? Based on the paucity of debate in the province and minimal enthusiasm for the idea here, people might think it doesn't really matter for Manitoba. But they would be wrong.
Manitoba's economic fortunes turn largely on the vibrancy of small- and mid-size business markets, and investment in our small-business sector. If securities regulation creates an excessive rule burden and imposes inefficient compliance requirements on intermediaries, it can contribute to higher overall business costs and undermine issuers' and intermediaries' ability to raise capital.
Further, even some well-intended rules like investment suitability requirements -- if not interpreted by the regulator with sufficient flexibility -- can discourage brokers from recommending speculative equities, not because they don't make sense for the investor, but simply because the regulatory risk is judged too high.
If Manitobans have not given regulatory reform the attention it deserves, it is probably because many of the existing rules are formulated and reviewed by the rule-making bodies at the larger provincial commissions, and then approved as national policies by all 13 securities commissions in Canada. But that can't let local regulators off the hook from ensuring the rule-making process is comprehensive and fair. After all, this regulatory framework will ultimately influence the flow of local capital to local businesses.
In recent years it has become more difficult to find the right regulatory balance in the capital-raising process in Manitoba. Requiring regulators to thoroughly justify their rule-making process and decisions forces a key discipline on the regulatory process, but the accountability process for the provincial securities commissions is not sufficiently rigorous to guarantee the standard needed to ensure efficient capital markets and well-protected investors. While regulators provide an annual review of their priorities and accomplishments, they are under no obligation to justify the regulatory process -- and its competitiveness -- to legislative committees in public, a practice common in many foreign jurisdictions. In addition to insufficient oversight of provincial regulators, scrutiny of the regulatory process in Manitoba is undermined by the heavy rule-making agenda, complications in data measurement and cost-benefit analysis, and limited expertise and resources available to the department of finance. This opens the door to potentially damaging impacts on capital-raising in Manitoba, both from excessive rules and the unintended consequences of valid rules.
This is where the common securities regulator comes in. The common regulator would bring with it an effective oversight mechanism, through a federal-provincial legislative committee drawn from a council of ministers, and through qualified staff and sufficient resources to provide a co-ordinated, detailed assessment of the potential impact of all proposed rules.
Canada has uniquely vibrant provincial small-business markets. But we need an effective national accountability structure to ensure securities regulation meets high standards of investor protection and is not at cross-purposes with public policy designed to promote small-business capital formation in all provinces.
Charlie Spiring is vice-chairman and director,
National Bank Financial, and vice-chairman,
Investment Industry Association of Canada.