New committee should have final say on improving securities regulation, MacKay says

(November 19, 2002) Canada’s hodgepodge system of securities regulation is not beyond repair, but it does need a serious upgrade as soon as possible, says Saskatchewan lawyer Harold MacKay. In a report released today on ways to improve the current regime, MacKay recommends a committee be set up focusing on two models: harmonization or a single national regulator.

“I conclude that the current system, as presently operated, is inadequate to meet the challenges of today and tomorrow,” MacKay says in a letter to federal Finance Minister John Manley. “While not broken, it must be improved significantly, and in a prompt manner.”

In his report, MacKay says that achieving a sound, efficient securities regulatory system is a matter of national and international importance. “In an increasingly competitive world, Canada’s regulatory structures have to be world-class, not run-of-the-mill,” he says.

“We as Canadians should be prepared to examine our regulatory structures, as well as our regulatory practices, in a zero-based process,” MacKay says. “We need to ask what is best for Canada and for Canadians, from coast to coast. We need to do so in a fresh fashion, setting aside old bromides.”

MacKay recommends that the committee, consisting of up to six “wise persons,” be created by the federal government, with the mandate to recommend an appropriate model for securities regulation in Canada.

MacKay rejects the notion of Ottawa proceeding unilaterally on the regulatory issue, arguing that existing problems can best be solved through a collaborative process. “There should be active participation from the provinces, who have much to offer and gain,” MacKay says, adding that the process should not be derailed, even if some provinces choose not to participate.

While there should be no effort to constrain the committee’s work, it should focus on two possible options, MacKay recommends. The first would aim to improve the current system through harmonization efforts, such as those being undertaken by the Canadian Securities Administrators. “Those enhancements could include the adoption of the single passport model advocated by some market participants, which builds upon the existing mutual reliance mechanisms of the CSA,” he says.

The second option would focus on a “single securities commission model, under which governments choosing to participate would pool their authorities under one regulator administering one set of rules.”

That description sounds similar to Ontario’s proposal for a pan-Canadian regulator, run by the provinces, not the federal government. However, several provinces have expressed concerns that any national regulator, whether administered by Ottawa or not, would not reflect regional differences.

MacKay says although it is important to take regional differences into account, if a new system were designed today, it would “undoubtedly differ significantly from the present one,” noting that there are more than 40 financial regulators in Canada, including self-regulatory organizations.

The committee should be up and running as soon as possible, MacKay says, and should set September 2003 as a target date for its final report.

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“Mr. MacKay’s report provides an excellent starting point for a collaborative effort to ensure a regulatory framework that is flexible and responsive to regional capital markets and emerging public companies while promoting investor protection,” John Manley said in a statement.

David Brown, chair of the Ontario Securities Commission, said he supports the MacKay report.

“Mr. MacKay’s recommendations are timely. They recommend a consensus-based approach to resolve issues and bring national unity to our fragmented securities regulatory system,” said Brown in a statement. “Mr. MacKay clearly recognizes the need to focus Canadians from all provinces and territories on the importance of building a system that unifies regulation for Canadian investors and issuers.”

MacKay, a former board member at the Bank of Canada, and currently a visiting economist at the federal finance department, was appointed by Manley on October 3 to come up with recommendations to improve the regulatory system.

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

(11/19/02)