Passport model focus of finance ministers’ consultations

(July 14, 2003) Hot on the heels of the wise persons committee, six provincial finance ministers are in Toronto this week for consultations on reforming the country’s securities regulatory system. While the wise persons committee has been asked to take a broad look at securities reform, the provincial initiative is somewhat more focused, paying specific attention to the idea of a passport system which would allow advisors to operate across provincial boundaries.

A discussion paper released by the ministers earlier this year rejected the idea of a single, federally run national regulator, arguing that such a plan “did not respect provincial responsibility for the area of securities.”

Instead, the paper zeroes in on the passport model, under which market participants would deal with only one “primary” regulator. Through legislation, other jurisdictions, known as “hosts,” would rely on the primary regulator to perform supervisory duties.

Such a system would be “relatively simple to implement and could be adopted in a timely manner as it builds on the existing regulatory structure and mutual reliance review system,” the paper says.

However, IFIC has criticized the finance ministers’ passport proposal, arguing that it fails to recognize the need for a national set of securities rules that are applied and interpreted consistently.

“This proposal would not introduce regulatory uniformity but rather presupposes and is dependent upon such uniformity to work,” IFIC said in a letter to the committee. “We believe that a passport model does not go far enough as it does little more than preserve the status quo by allowing too much local variation in provincial/territorial securities laws.

“A voluntary model that preserves local differences in securities regulation fails to address the fundamental flaws of our current regulatory framework and the crux of the problems faced by our industry which arise from the fact that it operates nationally but is regulated provincially,” IFIC added.

IFIC also complains that any applicable fees would still have to paid to both primary and host regulators. “Given that issuers would rely upon decisions made by the primary regulator, no justification is given for the payment of fees to host regulators,” IFIC says, adding that the idea of paying fees to jurisdictions for doing “virtually nothing” would be difficult for members to accept.

“We are also sure that the idea of revenue sharing between primary and host regulators would be extremely unpalatable to prospective participating jurisdictions,” IFIC adds.

The “steering committee of ministers responsible for securities regulation,” formed in February, includes British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec. The committee has been on the road since late June, visiting Winnipeg, Calgary, Vancouver, Montreal and Halifax. The consultations wrap up in Toronto on Tuesday. A final report is expected this fall.

National regulator, passport system or pan-Canadian commission? Which one would be the best choice for Canada’s securities industry? Debate the merits with your fellow advisors in the Talvest Town Hall on Advisor.ca.

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