BCSC chair: Nothing will come from

(September 17, 2003) Taking an “all or nothing” approach to harmonizing Canada’s patchwork of securities regulators is a good way to end up with nothing, according to British Columbia Securities Commission (BCSC) chair Doug Hyndman. Instead, Canada should adopt the “passport model,” he recommended in a speech to the Economic Club of Toronto today.

“I am not suggesting that anyone give up the dream of a national regulator,” Hyndman said. “But if we can make progress now, in the typical Canadian way of compromise, we might well be able to reach agreement later on what my colleague [Ontario Securities Commission chair] David Brown has called the ‘real prize.'”

He said the passport model represents the path of least resistance and should be adopted because it would be too difficult to get all 13 jurisdictions to agree on a single set of rules for the entire country.

“We don’t need identical rules to get started,” he said. “The lesson of history is that making unanimous agreement on uniformity a prerequisite for change impedes progress rather than facilitating it.”

The passport model would function in a similar fashion to a driver’s licence. If your home province has judged you to be qualified to work in its securities market, then other provinces would accept this opinion rather than requiring additional regulatory approval.

“This approach certainly does not preclude — in fact it encourages — ongoing innovation, more movement toward harmonization, more streamlining,” said Hyndman. “We think it is in the interest of all stakeholders that we take the first major step toward streamlining now and keep the process moving forward on further reforms.”

Hyndman pointed out that the function of the passport system is not to eliminate differences between each jurisdiction’s regulations, but to bridge these gaps. “A flexible passport would let individual provinces move ahead with reforms but without putting market participants in the awkward position of having to comply with multiple sets of different requirements,” he said.

To ensure regulatory integrity, Hyndman suggests the passport model include the requirement that each province that wants to be a home jurisdiction demonstrate that its regulatory regime is in compliance with the International Organization of Securities Commissions standards.

Critics of the passport model have said it would inspire a “race to the bottom” as jurisdictions slashed their regulatory regimes to attract companies seeking less restrictive environments, but Hyndman disagrees.

“Market pressure and the desire of regulators to follow best practices would continue to provide a strong motivation toward uniformity,” he said. “No one wants to fall behind and get a reputation as a jurisdiction with lax regulation. A bad reputation is too hard to lose.”

What do you think about the passport model? Do you think it is a good first step toward a national regulator? Do you think Canada even needs a national regulator? Share your thoughts about this topic in the Talvest Town Hall on Advisor.ca.

Filed by Steven Lamb, Advisor.ca, slamb@advisor.ca