Ermanno Pascutto is the Executive Director, FAIR Canada
Further to the Ontario government’s “Making Ontario Open for Business Act," the Ontario Securities Commission (OSC), the securities watchdog, is pursuing its regulatory burden reduction initiative for capital markets participants. FAIR Canada, the independent voice of the Canadian investor, believes that regulatory burden reduction is an important objective if it results in “better regulation” without compromising investor protection or market integrity. So it is to the OSC’s credit that it is pursuing such reforms.
Regulatory burden, however, does not only encompass regulatory rules but the processes and infrastructure that administer them. Lower burden can be achieved by deploying a user-friendly and efficient experience. An obstacle to burden reduction by changing rules is the requirement that all provinces and territories agree to the changes for consistency or uniformity. Attaining consensus takes years, such that reducing burden by rule changes is unlikely to happen any time soon.
The allure of a single national regulator, including as a tool for burden reduction, is understandable. It is also misguided. There are reasons why reform proposals for a national regulator have gone unfulfilled for more than 50 years and will continue to go unfulfilled, all the while consuming massive resources, stirring up conflict and going nowhere.
FAIR Canada has a better suggestion: a national portal, instead of a national regulator, that would address and resolve the conflict over a national regulator while addressing the burden imposed by fragmented, outdated, complicated and inconsistent systems to deliver and access important information and disclosure.
Current systems are a burden
Capital markets industry members (and eventually shareholders and investors) bear the burden of a plethora of provincial and other jurisdictional systems and interfaces. The consensus is that the few nationwide systems that exist – the System for Electronic Document Analysis and Retrieval (SEDAR), the National Registration Database (NRD) and the System for Electronic Disclosure by Insiders (SEDI) – are outdated, unfriendly, unsearchable and slow. Regulator websites, in addition, are scattered and dissimilar. Some, including Ontario’s, aren’t virtually searchable. Some don’t make easily accessible the consolidated, up-to-date versions of the rules that the industry is expected to comply with.
How difficult must access to information be for investors if it is so complicated for experts? Even the regulator call to action to check the registration status and disciplinary history of any financial adviser is easier said than done. The information is scattered around different databases and is also incomplete.
Many industry comments submitted to the OSC on burden reduction bemoan the state of IT infrastructure and related services. Many stressed that harmonization and co-ordination are not just important but critical. There is a solution.
A National Securities Portal
FAIR Canada proposes that the Canadian provincial and federal governments and regulators prioritize the creation of a national securities portal as an alternative to a national securities regulator.
The term “national regulator” can be misleading since the proposed Capital Markets Regulatory Authority (CMRA) is not national. At best it is partial and hybrid, excluding systemically important jurisdictions. Problems with a fragmented system will not be solved when provinces such as Quebec and Alberta will never participate. This is a slow moving, expensive quagmire that will consume another decade attempting to reconcile irreconcilable legal and political conflict.
On the other hand, provinces opposed to the national regulator would probably agree to a national securities portal, especially if it is proposed in exchange for dropping the national regulator project. Provinces would save significant costs. A single modern system would exist for disclosure filings, regulatory correspondence and fees, for example. It would be more usable and searchable with standardized search protocols to greatly improve speed. Access to information would be a practical reality, not a theoretical one.
A national portal could also be designed to centralize reporting on financial fraud to consolidate into a single system documentation on financial fraud reporting that is otherwise separated amongst a wide array of police and regulatory databases. FAIR Canada identified this problem as early as 2011, including in its 2011 “Report on a Decade of Financial Scandal,” calling for a national action plan to tackle investment fraud. A financial fraud database could include, for example, reporting to the Ontario Provincial Police, Royal Canadian Mounted Police, securities regulators, anti-money laundering regulators and banking regulators in Canada.
A data-driven, shore to shore, information technology and data system would also enable data analytics and artificial intelligence applications, improving on capital markets risk management, proactive risk and systemic risk early identification and investor protection.
An information technology project would also create an opportunity to design prospectively, not only to manage past needs but new and novel ones that represent not only where the capital markets have been but where finance and fintech are going.
To create this new information technology system, for the capital markets industry and ideally also to address the emerging fintech industry, governments and regulators should create a separate private company to build and administer a national IT system with its own governance structure and dedicated resources to ensure timely and centralized decision-making in place of the fragmented and consensus-driven decision-making that presently bedevils the Canadian Securities Administrators (CSA). The company would be owned by all of the CSA members and the federal government. The new entity would be responsible for maintenance and adherence to the highest security and risk standards.
There is an initiative in existence with IT consultancy CGI Inc. to replace CSA systems. However, it was begun in 2016 and there isn’t clear visibility as to where it currently stands, its breadth and whether it addresses any of the newer industry issues additional to the old ones. FAIR urges that new system development be holistic, forward looking, separated, funded and prioritized.
FAIR Canada believes that developing a national securities portal is a solution that isn’t just good in theory but that is also viable and deliverable. It would significantly reduce regulatory burden, improve access to information, enable data driven intelligence and serve the public interest, all at a lower cost.
Let’s get behind supporting and prioritizing this initiative that will accomplish all of these various benefits, and that, as a bonus, will finally put decades of pointless and endless intergovernmental conflict to bed.