Let’s get on with it

Concerns over excessive regulation are driving initial public offering listings away from U.S. exchanges and onto overseas trading venues. And Canada deserves a piece of that action, according to members of the Crawford Panel which presented its final report on Wednesday, recommending the creation of a single securities regulator.

Canada is currently the only major country in the world without a single regulator, the report notes. “Domestic and foreign investors perceive Canada’s current fragmented regulatory system as an embarrassment.”

“After 40 years of discussion and study, market participants that we consulted hope that our political leaders will finally find a way to agree that a single regulator can ensure more efficient and competitive capital markets for the benefit of all Canadians,” said the panel’s chair Purdy Crawford, a lawyer at Osler, Hoskin & Harcourt, adding that the creation of a Canadian Securities Commission — similar to the U.S. Securities & Exchange Commission — will dispel perceptions Canada’s regulatory framework is fragmented and dysfunctional. Those perceptions, he and other panelists assert, discourage companies that seek to raise capital from floating IPOs on Canadian exchanges.

The panelists noted the Sarbanes Oxley Act in the U.S., specifically the section requiring independent auditing of a public company’s internal controls, creates so many additional costs that companies are moving listings overseas, primarily to London.

“IPOs are moving to other markets,” Crawford said, “and Canada’s a good place for that to come.”

How a CSC would ultimately be created was laid out in the report, which favours a principles-based, rather than rules-based approach to securities regulation, written in plain language within a user-friendly system.

It suggests one province enact the proper legislation and subsequent provinces adopt that law by reference. Panelists say this method of enactment has been upheld by the Supreme Court of Canada. Participating jurisdictions would nominate directors to sit on the panel, which would be overseen by a chief commissioner.

A separate Canadian Securities Tribunal would also be set up to adjudicate disputes and conduct hearings into regulatory violations. A single fee structure would ensure the body was self funding, however the panel also suggested that an agreement should be reached regarding compensation for loss of revenue to some participating jurisdictions as part of the transition to a single regulator.

To assuage concerns that Ontario would dominate the new entity, the structure would guarantee each participating jurisdiction would have only one vote on the council. This measure, the report says, would protect each province’s constitutional authority over securities regulation.

To some extent, panelists said creation of the CSC is a logical extension of the current passport system, now in use by every province except Ontario. The passport gives participants access to markets in multiple jurisdictions simply by abiding by the rules of their home province regulator. But, says BMO Nesbitt Burns chairman Jacques Ménard, the passport system is “part of the journey and not the destination.” The ultimate goal, he stressed, is to garner support for a single regulator.

What’s not clear is whether the creation of a CSC will ultimately lead to regulatory consolidation. A lot of effort has been made to avoid stepping on provincial toes, so the industry should be wondering whether it will be getting its ultimate regulator, or simply another regulator.

For example, the Crawford report makes no recommendation as to the location of the proposed new single regulator, opting to defer that particular decision to the CSC’s board of directors.

The first step, the panel suggests, is to establish a task force to write a Canadian Securities Act and to identify current national and multilateral instruments that should be adopted as rules.

After that, a nominating committee should immediately begin identifying candidates for the board of directors and other executive positions.

Members of the Crawford panel have been invited to a meeting of provincial and territorial ministers responsible for securities regulation next week in Toronto.

Filed by Phillip Porado, Advisor’s Edge phillip.porado@advisor.rogers.com

(06/07/06)

Philip Porado