Dodge calls for harmonized securities laws

(September 22, 2005) Bank of Canada governor David Dodge says there is no need for different rules to be applied province-by-province, repeating that the country needs some sort of harmonized securities regulatory system.

“Efficiency dictates that Canada should have uniform securities laws and regulations based on principles that apply to everyone,” Dodge said in a Toronto speech on Thursday.

Still, Dodge stopped short of calling for a single national regulator. “The issue of form I don’t think is nearly as important as the issue of substance,” he said following the speech. “Regardless of 13 regulators or one, what we really need to focus on is having regulation that is appropriate for dealing with the rather different needs of different types of Canadian corporations.”

To that end, Dodge pitched a three-tier approach for issuers in his speech. “For example, one tier could apply to large, complex firms that want access to international capital markets. Rules for these firms would be similar to those that are applied in New York or London.”

“At the other end of the spectrum, another tier could apply to small, speculative resource firms that have historically relied on Canadian equity markets for financing.” The mid-tier would apply to the bulk of Canadian firms, which choose to access only Canadian capital markets.

While those different tiers of firms exist in all major provincial and territorial jurisdictions, investors, on the other hand, have similar needs, he noted. “The key point is that, while the application of rules needs to take into account the size and complexity of firms, there is no need for different rules to be applied based on the province or territory of the issuer or investor.”

Dodge also said that Canada needs to be competitive internationally, and could gain an advantage by developing a superior regulatory framework. However, he cautioned that Canadian rules should be tailored to domestic needs, pointing to Canada’s controversial response to Sarbanes-Oxley.

“Canadian policymakers embrace the general principles behind this legislation in terms of promoting good governance and financial practices. But the extreme level of detail in the application of its rules, as well as its focus on process instead of outcomes, creates costs for many of our firms that likely exceed the benefits to the system,” he said.

“The goal is not to mimic U.S. regulations, despite that market’s size and proximity. The principles behind our regulations must be as good as, or better than, those of other countries. But we must apply those principles in a way that develops a comparative advantage for our firms and our markets.”

Enforcement is another key component of effective regulation, the governor said, noting that even the most coherent and efficient system won’t be effective unless it is followed. “Participants must be appropriately monitored. And when the rules are broken, offenders must be prosecuted, and adequate penalties must be strictly applied.”

Following the speech, Dodge was asked how rising energy prices will affect the Canadian economy. He noted there appears to be little impact on prices on other goods and services to date, “But that is partly largely due to the very competitive global market for products and services,” adding the central bank will continue to monitor inflation very closely.

As far as jumping into the income trust debate, Dodge said he would not do so publicly. “It is a very different issue and thank God I’m no longer in the Department of Finance,” he quipped.

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Filed by Doug Watt and Kate McCaffery, Advisor.ca, with files from Joel Kranc, Benefits Canada

(09/22/05)