Thursday, October 12, 2006
Canadian task force releases sweeping securities reform report
Canadian task force releases sweeping securities reform report
Oct 06 2006 Christopher O'Connor
The Task Force to Modernize Securities Legislation in Canada has released a long-awaited report that offers a series of recommendations designed to make the regulation of securities in the country more effective.
The Investment Dealers Association of Canada, a self-regulatory organization, established the task force in 2004 to address securities issues. The 262-page report, titled Canada Steps Up, lists 65 recommended courses of action, policies and undertakings. These address guiding regulatory principles, market-access issues, the flow of information to investors, the regulation of hedge funds and the enforcement of existing laws, rules and principles.
"The task force is of the strong view that securities laws, no matter how modern, are of little use and do little to enhance the vitality of the Canadian capital markets unless they are fairly and vigorously enforced," the report stated.
Among the recommendations, the crucial entries include:
ensuring that securities regulation is based on "clearly enunciated regulatory principles" rather than concrete, detailed rules;
using so-called "scaled regulation," in which laws and enforcement take the size and market capitalization of issuers into consideration;
establishing a uniform set of guidelines to use in conducting the cost-benefit analysis of regulations;
creating an independent body, to be staffed by members of all stakeholder groups involved, that would conduct intermittent cost-benefit analyses of "every significant" regulatory intervention made by securities regulators;
turning exclusively to the use of electronic means and XBRL code to make disclosures and to file required documents; the Task Force uses the code name MERIT (Model for Effective Regulatory Information Transfer) for this initiative;
adopting a "well-known seasoned issuer" classification for companies with a market cap of $350m or higher to make entry onto the public market easier and faster;
forming a regulatory framework for the public offering of hedge funds and at least considering a requirement for hedge fund advisers to register with the relevant securities regulator;
birthing a "cooperative national program" to: prioritize enforcement; develop reporting systems designed to measure the effectiveness of enforcement efforts; collect relevant data; and report that data to an independent researcher to prepare and issue public reports;
expanding the capacity of integrated market enforcement teams established by the Royal Canadian Mounted Police to conduct as many securities-related criminal investigations as possible;
introducing a new "senior independent review officer" position in each IMET office and in each securities regulator, whose role would be to oversee, review and focus all ongoing investigations and decide which investigations merit formal hearings by securities tribunals.
The report also presented two "ideas for consideration," proposals and solutions that were discussed but that could not be embraced on a consensus basis. One of these chapters explored the possible regulation of "gatekeepers" — auditors, analysts, lawyers and the like — to guard against conflicts of interest and to support objective analysis and research. The other covered the possibility of establish insurance to protect investors from market "misinformation."
The task force, however, did not weigh in on a central debate in Canada as to whether to create a single national securities regulator. Currently, each of the country's 13 provinces and territories has its own regulatory body and together issue harmonized national instruments under a consortium known as the Canadian Securities Administrators. The report says that this issue was not part of the task force's specific mandate; however, it did recognize the challenges ahead in realizing the report's recommendations in a cohesive manner.
"While we have not directly tackled the issue of regulatory fragmentation in our report, we do add our voice to the chorus demanding that immediate steps be taken to ameliorate the inefficient, outdated and duplicative securities regulatory structure that currently exists in Canada," the report proclaimed.
CSA chairman Jean St-Gelais, for his part, welcomed the release of Canada Steps Up.
"We welcome the report of the task force and view it as a constructive document that will add to the debate on securities regulation in Canada," said St-Gelais in a statement. "We will review the report carefully and consider its contents in light of this debate.”
The CSA in recent months has issued proposed guidance on client commission practices and created a new policy requiring mutual funds to set up independent review committees.
The members of the task force are executives of financial service firms, executives of publicly traded companies, law professors and industry researchers and experts. Its chairman is Tom Allen, a past chairman of the Accounting Oversight Board of Canada.
In addition to the report, the task force also released six supporting volumes that contain academic research it commissioned to aid in the report's creation. The research input was supported by comments from the public at hearings in Vancouver, Ottawa, Toronto and Montreal. The task force also solicited the input of regulators and self-regulatory organizations in the US and the UK who have drafted a few modernizing initiatives of their own in recent years.
Oct 06 2006 Christopher O'Connor
The Task Force to Modernize Securities Legislation in Canada has released a long-awaited report that offers a series of recommendations designed to make the regulation of securities in the country more effective.
The Investment Dealers Association of Canada, a self-regulatory organization, established the task force in 2004 to address securities issues. The 262-page report, titled Canada Steps Up, lists 65 recommended courses of action, policies and undertakings. These address guiding regulatory principles, market-access issues, the flow of information to investors, the regulation of hedge funds and the enforcement of existing laws, rules and principles.
"The task force is of the strong view that securities laws, no matter how modern, are of little use and do little to enhance the vitality of the Canadian capital markets unless they are fairly and vigorously enforced," the report stated.
Among the recommendations, the crucial entries include:
ensuring that securities regulation is based on "clearly enunciated regulatory principles" rather than concrete, detailed rules;
using so-called "scaled regulation," in which laws and enforcement take the size and market capitalization of issuers into consideration;
establishing a uniform set of guidelines to use in conducting the cost-benefit analysis of regulations;
creating an independent body, to be staffed by members of all stakeholder groups involved, that would conduct intermittent cost-benefit analyses of "every significant" regulatory intervention made by securities regulators;
turning exclusively to the use of electronic means and XBRL code to make disclosures and to file required documents; the Task Force uses the code name MERIT (Model for Effective Regulatory Information Transfer) for this initiative;
adopting a "well-known seasoned issuer" classification for companies with a market cap of $350m or higher to make entry onto the public market easier and faster;
forming a regulatory framework for the public offering of hedge funds and at least considering a requirement for hedge fund advisers to register with the relevant securities regulator;
birthing a "cooperative national program" to: prioritize enforcement; develop reporting systems designed to measure the effectiveness of enforcement efforts; collect relevant data; and report that data to an independent researcher to prepare and issue public reports;
expanding the capacity of integrated market enforcement teams established by the Royal Canadian Mounted Police to conduct as many securities-related criminal investigations as possible;
introducing a new "senior independent review officer" position in each IMET office and in each securities regulator, whose role would be to oversee, review and focus all ongoing investigations and decide which investigations merit formal hearings by securities tribunals.
The report also presented two "ideas for consideration," proposals and solutions that were discussed but that could not be embraced on a consensus basis. One of these chapters explored the possible regulation of "gatekeepers" — auditors, analysts, lawyers and the like — to guard against conflicts of interest and to support objective analysis and research. The other covered the possibility of establish insurance to protect investors from market "misinformation."
The task force, however, did not weigh in on a central debate in Canada as to whether to create a single national securities regulator. Currently, each of the country's 13 provinces and territories has its own regulatory body and together issue harmonized national instruments under a consortium known as the Canadian Securities Administrators. The report says that this issue was not part of the task force's specific mandate; however, it did recognize the challenges ahead in realizing the report's recommendations in a cohesive manner.
"While we have not directly tackled the issue of regulatory fragmentation in our report, we do add our voice to the chorus demanding that immediate steps be taken to ameliorate the inefficient, outdated and duplicative securities regulatory structure that currently exists in Canada," the report proclaimed.
CSA chairman Jean St-Gelais, for his part, welcomed the release of Canada Steps Up.
"We welcome the report of the task force and view it as a constructive document that will add to the debate on securities regulation in Canada," said St-Gelais in a statement. "We will review the report carefully and consider its contents in light of this debate.”
The CSA in recent months has issued proposed guidance on client commission practices and created a new policy requiring mutual funds to set up independent review committees.
The members of the task force are executives of financial service firms, executives of publicly traded companies, law professors and industry researchers and experts. Its chairman is Tom Allen, a past chairman of the Accounting Oversight Board of Canada.
In addition to the report, the task force also released six supporting volumes that contain academic research it commissioned to aid in the report's creation. The research input was supported by comments from the public at hearings in Vancouver, Ottawa, Toronto and Montreal. The task force also solicited the input of regulators and self-regulatory organizations in the US and the UK who have drafted a few modernizing initiatives of their own in recent years.
