July 16, 2010

Recent news reports and commentary about whether Canada’s new securities regulator will have a head office and, if so where it should be, divert attention from the real benefits of the proposed Canadian Securities Regulatory Authority (CSRA). These benefits include clear accountability, increased efficiency and improved enforcement, all for the good of Canadian investors and market participants.

The Transition Plan for the Canadian Securities Regulatory Authority sets out an approach to national regulation that is responsive to investors and market participants everywhere. That means providing a high level of direct service in all parts of Canada. It also means that the size of, and services provided by, each office will be determined by local needs. This model is used by many businesses and professional services firms that deliver services through distributed structures and often have decision makers in various offices. Under our model, there will be a physical office in which the Chief Regulator, who is the chief executive officer, will be based.

Where that will be—and whether that’s called a head office, an executive office or something else—will be determined in future planning. But this issue is not at the crux of the system we have proposed. The current provincial and territorial system of regulation is an obstacle to achieving Canada’s potential, not because of where regulatory offices are located or their number, but rather because it lacks national accountability. While the current system—and particularly its ability to deliver on-the-ground service to investors and market participants—has served Canada well in many respects, it is limited in its ability to provide for policy making on a national scale, a crucial factor given the interconnectedness of markets, both within Canada and internationally.

Today, interprovincial policy development occurs through the Canadian Securities Administrators (CSA), a forum of provincial and territorial regulators that operates on a consensus basis without the benefit of a single final decision maker. Policy development and implementation are too often paralyzed by the impasses and delays that accompany a process that has no effective mechanism to resolve differences. Even where agreement on policy content is reached, consistent policy application can be elusive. No regulator today has a mandate to protect the integrity of Canadian capital markets as a whole, nor to speak for Canada internationally when global standards are set. Nor is any one regulator responsible for coordinating enforcement activities at the national level. To centralize regulation in one place, however, would throw the baby out with the bath water. Canada is a vast country with diverse local economies and market conditions; Canadian investors and market participants need to receive effective service no matter where they reside; and any plan should build on the current system’s strengths while delivering the benefits that it cannot. What we have proposed preserves local service delivery capability, but marries it with integration, accountability and national standards.

The CSRA will have a sufficient connection to local markets to deliver service effectively, whether it is dealing with investor complaints, investigating abusive or illegal practices, or reviewing a new securities firm’s operations to ensure that it is suitable to deal with investors. What will change from today is that service delivery will be provided by a single, integrated organization and guided by a single statute, a single set of regulations and a single set of standards. The CSRA will have clear internal accountability and reporting lines. It will have a cohesive executive and management team, led by a Chief Regulator and overseen by an expert and experienced board of directors.

Their leadership will set the culture and direction of the organization and will provide for final decision making on regulatory matters. Simply put, the buck will stop there. While the CSRA will have the necessary autonomy to move quickly in response to market conditions, it will also have effective external accountability to government and the public, through a defined reporting process. It will hold an annual public meeting. Its regulations will be subject to public comment and government approval. And, investors and market participants will have input into the policy-making process. The Transition Plan is a first step in a complex process. We look forward to continuing our work with participating jurisdictions, investors and market participants to develop and implement a securities regulator that will give to all Canadians the safe and competitive capital markets they deserve.

Douglas Hyndman
Chair and Chief Executive Officer
Canadian Securities Transition Office

Keywords: investment