Alberta advocates tiered approach to regulation

(February 17, 2005) As Ontario and B.C. squabble over rules versus principles-based securities regulation, Alberta is coming down the middle with a new tiered approach, proposing different rules depending on the size of the firm.

Calling it the great Canadian compromise, Alberta Securities Commission vice-chair Glenda Campbell outlined the province’s model at a securities conference in Toronto on Thursday, sponsored by the Canadian Institute.

The concept, known as proportionate regulation, is in response to two diverse regulatory philosophies, Campbell explained.

“At one end of the spectrum is global convergence,” she said. “Advocates of this position, of which Ontario is probably the most vocal, believe Canada needs a robust rules-based regulatory system that is highly harmonized with the U.S.”

“They cite Canada’s relatively small proportion of the global market as the rationale for harmonizing with the U.S.,” Campbell added. “They fear that any differences between the Canadian and U.S. regulatory systems may be a deterrent to foreign investors.”

On the other side of the debate are those, like B.C, who favour moving away from detailed prescriptive rules to a more flexible system, modelled on a principles-based approach, Campbell said.

Alberta sees merit in both those positions, she said, since the province has the second highest number of large companies, behind Ontario, and the second largest number of small cap firms, trailing B.C.

“We are sensitive to concerns about over-regulation but we also feel that market participants want more than just principles,” she argued. “We need to ensure that our regulatory approach doesn’t hinder the growth of small companies or the growth of big companies into international competitors.”

“It’s simply a recognition of reality,” she added. “There’s a difference between EnCana and a junior oil and gas company. Appropriate regulation may require additional regulation for the junior market.”

The CSA is moving towards formally recognizing this concept, Campbell noted. “In each case, we will first ask ourselves whether we can develop a regulatory response that is appropriate for the entire market. If we can’t, then we consider different requirements for different sizes of issuers.”

Perhaps not surprisingly, regulators from B.C. and Ontario are not fully supportive of Alberta’s new direction.

“I’m a bit of a sceptic about going too far with two-tier regulation,” said Doug Hyndman, chair of the B.C. Securities Commission, who also spoke at today’s conference. “I think we can, if we put our minds to it, design rules that work for the whole Canadian market — that meet international standards but are not unduly prescriptive and burdensome for our market.”

But he agreed that there are clearly cases where it makes sense to differentiate between different sizes of issuers.

Ontario Securities Commission vice-chair Susan Wolburgh-Jenah was more critical, stating that embracing the two-tier approach could be dangerous. “I think it’s important to start the examination by saying can you obtain the objective for all companies with the same approach? The question should not be do we need a two-tier approach, but can we develop an approach that will work for everybody.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com