CSA chair calls for review of SRO system

(January 29, 2003) Canada’s self-regulatory organizations would benefit from a structure that encourages competition, says Doug Hyndman, chair of the Canadian Securities Administrators. Hyndman says he’s concerned that SROs are becoming monopolies, leaving dealers no choice as to what organization they work with.

Hyndman was the keynote speaker today at a Toronto conference sponsored by the country’s SROs.

“I think we should step back and review the SRO structure we’ve created,” Hyndman said, noting that Canada used to have five SROs — the IDA and four stock exchanges — that worked cooperatively but were also in competition.

“Dealers had some ability to switch from one SRO to another, which provided at least some incentive for efficiency,” he said.

As a result of consolidation and restructuring, the SRO system is moving towards “functional monopolies, under which most dealers have no choice about what SRO to deal with,” he said.

Hyndman, also chair of the British Columbia Securities Commission, is not suggesting that Canada returns to the old system, or that any of the current SROs be split up. He says he wants to inject the idea of competition into the SRO debate and not “automatically assume that the world would be a better place if all SROs were merged into one.”

Other speakers at the SRO conference this morning included Investment Dealers Association president Joe Oliver, Mutual Fund Dealers Association chief operating officer Larry Waite and Market Regulation Services president Tom Atkinson. Only Atkinson weighed in on the competition issue. “The question is as regulators, if we compete among each other, will we be more efficient at what we do?” he said. “My feeling is that the answer is no. We have to work better together and share resources.”

In his speech, Hyndman also revealed some progress on the Uniform Securities Law project, spearheaded by Alberta Securities Commission chair Stephen Sibold. A concept paper will be released tomorrow, Hyndman said. The USL is an effort to harmonize the hodgepodge of securities rules across the country. “We are also looking to streamline the process for registering in multiple jurisdictions, which is a real bugbear for the securities industry,” Hyndman said.

Hyndman also repeated his call to reduce the regulatory burden in Canada by tackling the volume and complexity of regulatory requirements. “We have created a rule book of mind-numbing detail and we mandate mountains of disclosure that is irrelevant to investors’ decisions.

“We have to get off that treadmill and move to a higher plane by establishing some clear, simple fundamental standards of conduct that apply to everyone in the securities business,” he added.

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Hyndman pointed to his own commission’s effort to move away from prescriptive rules toward a more principles-based system. He urged regulators to resist the temptation to wholly adopt U.S.-style rules in response to last year’s accounting scandals. “We should not let the current focus on Enron and Sarbanes-Oxley distract us from the important task of simplifying and streamlining regulation.”

Oliver, just back from an international meeting of SROs, says his colleagues from around the world privately worry about the effectiveness of new regulatory policies intended to boost investor confidence. But he says regulators are reluctant to speak out because of the weight of political pressure and public focus on the issue.

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What would you like to see happen with SROs? Who do you agree with — Hyndman or Atkinson? Share your views in the “Free for All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(01/29/03)

Doug Watt