Passport model gaining momentum in regulatory reform race

(July 22, 2003) You could hardly call it a race, but among the myriad proposals to reform Canada’s securities regulation system, the passport model seems to be today’s front-runner. Last week, provincial finance ministers agreed to begin work on the system, and yesterday, the British Columbia Securities Commission (BCSC) strongly endorsed the model, calling it a solution that can be adopted in Canada today.

Under the passport model, each province or territory would respect the regulatory regime of the other jurisdictions, effectively allowing registered advisors and firms to work in markets across the country.

A committee of provincial finance ministers recently held consultations across the country on securities reform, culminating with a meeting in Montreal last Thursday.

“A large majority of stakeholders considered that a passport system should be put in place and encouraged the ministers to take quick action along those lines,” the ministers said in a statement. “In the coming weeks, ministers will consider what aspects of such a system can be implemented in the immediate future while setting the stage for further harmonization and streamlining of regulations.” The finance ministers will release their final report in October.

In a submission to the federal wise persons committee, which has a similar, though perhaps broader, regulatory reform mandate to the finance ministers committee, BCSC chair Doug Hyndman also came out in favour of the passport model.

“A mutual recognition passport model might not be your first choice and it might not be everyone’s idea of a flashy solution, but the objective should be to make some changes to improve what is already a good system of regulation,” Hyndman wrote.

Hyndman says the passport model would address concerns about duplication and overlap in securities regulation. Moreover, he noted, it can be adopted “in the real world of Canada today. We do not have to wait for quasi-constitutional negotiations on a national commission or for every province to adopt identical legislation.”

For example, he said, B.C. would consider an Ontario-based issuer that complies with the Ontario rules to be in full compliance with the regulatory regime in B.C. and would not impose any additional obligations.

The Independent Financial Brokers of Canada (IFB) is also a fan of the passport model. “We urge the adoption such a system, whereby a licensed individual would need only to register and pay the appropriate fees in order to carry on business in other provinces,” wrote IFB president David Barber today in Advisor.ca’s Talvest Town Hall.

“Ultimately, IFB would like to see a system that would eliminate the need for registration in individual provinces, but which would allow a registrant in any one province to carry on business in any other,” Barber added. “This move on the part of the finance ministers to a passport registration system is an important first step toward that goal.”

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Still, the passport model does not enjoy universal support within the industry. The Association for Investment Management and Research (AIMR) recently conducted a survey of 600 investment professionals on the issue of regulatory reform. Only 11% of respondents favoured the passport model, ranking it well behind other reform options, such as a federally run national securities commission or an inter-provincial body.

In its submission to the finance ministers committee, IFIC said the passport model does not go far enough and fails to recognize the need for a national set of securities rules that are applied and interpreted consistently.

“We are of the view that a necessary precondition for the effective operation of any passport model is the implementation of some form of uniform securities legislation,” IFIC said.

But Hyndman insists that uniform laws are not a precursor for the passport system. “It is only necessary that each province have a credible and effective system of regulation upon which others can rely,” he argues.

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Are you in favour of the passport model? Or would you prefer to wait for a more comprehensive regulatory reform solution? Join a discussion already underway in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

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

(07/22/03)

Doug Watt