BCN 2003/05 - Publication of Uniform Securities Legislation Concept Paper [BCN - Rescinded]
The commission and other members of the Canadian Securities Administrators are publishing today a Concept Proposal called “Blueprint for Uniform Securities Laws for Canada.” The text of CSA Notice and Request for Comment 11-402 follows this notice.
The USL is primarily a harmonization initiative. The Concept Proposal also contains a few changes for streamlining and simplifying regulation.
The commission is participating in the USL project and supports its goal of harmonizing Canadian securities legislation. However, we think the uniform legislation should include much more streamlining and simplification. If it fails to do so, we will have missed a golden opportunity unlikely to reappear for decades to come. Canada’s markets, businesses and investors would be poorer as a result.
The 2002-05 CSA strategic plan says that the burden of regulation threatens the competitiveness of Canadian markets. It cites three sources of the excessive regulatory burden:
1. Differences in regulatory requirements among jurisdictions
2. Separate decision-making processes in each jurisdiction
3. The volume and complexity of regulatory requirements
Public discussion of the regulatory burden focuses almost exclusively on points 1 and 2, and CSA has devoted most of its efforts to these problems. We have accomplished significant harmonization through national rules and policies, and we are stepping up that effort through the USL project. Our mutual reliance review systems for prospectuses and applications, although not perfect, have streamlined decision-making processes and significantly reduced duplication. And we are looking at pushing mutual reliance further by including statutory delegation provisions in the USL.
However, we have made little progress in attacking the third source of excessive regulatory burden — volume and complexity. In fact, it has been getting worse.
In a survey of issuers we conducted to evaluate our commission’s proposed continuous market access disclosure system, we found that issuers spend 87% of their compliance time on regulatory provisions that are already substantially harmonized. That suggests we can make more progress in reducing compliance costs through streamlining and simplifying requirements than by harmonizing them.
The increased volume and complexity of regulation might be justifiable if it contributed to better protection of investors and market integrity, but it doesn’t. In fact, in some cases it is counter-productive. For example,
- the detailed disclosure we mandate sometimes adds little useful information and obscures the disclosure that really matters to investors;
- our excessively detailed and prescriptive requirements can confuse market participants, causing them to lose sight of the underlying principles; and
- our drift towards a prescriptive, rule-based system encourages a loophole mentality, where market participants follow the letter but not the spirit of the rules.
We are not alone in being critical of excessively prescriptive regulation. Many European regulators have raised similar concerns in responding to the impact on their markets of the Sabanes-Oxley legislation adopted in the United States last year.
What the BCSC recommends
The commission believes we should take this opportunity to enhance Canada’s competitive position as a place to invest and raise capital by providing securities regulation that is innovative, low cost, and tough but fair.
We believe that Canada will not be successful in doing so without attacking the problem of excessively burdensome and prescriptive regulation. We have begun to do so in British Columbia through our deregulation project, established in October 2001. Its goal is to “impose the minimum requirements necessary for investor protection and market integrity while supporting a broader goal of developing uniform requirements among Canada’s provincial securities regulators.”
The approach that the BCSC recommends that the USL take is generally reflected in our publications:
- New Concepts for Securities Regulation (February 5, 2002, BC Notice 2002/12),
- New Proposals for Securities Regulation (June 5, 2002, BC Notice 2002/20);
- Better Disclosure, Lower Costs - A Cost Benefit Analysis of the Continuous Market Access System (November 4, 2002, BC Notice 2002/45); and
- New Proposals for Mutual Fund Regulation (November 14, 2002, BC Notice 2002/46).
In New Concepts for Securities Regulation we said:
We are working actively with our CSA colleagues in the Uniform Securities Law (USL) Project to achieve the important goal of making Canada’s securities laws uniform.
However, we do not think that achieving uniformity alone will meaningfully reduce the regulatory burden on industry. Lack of uniformity is part of the problem with our system of regulation, but the bigger burden faced by industry is too many rules that are too complex, are too rigid and change too often.
We therefore think it is important to use the opportunity provided by the USL Project to do two things that would substantially improve the efficiency and competitiveness of Canada’s securities markets. We can both eliminate the vexing differences among securities legislation in different provinces, and simplify and update a system of regulation that has grown too complex and has failed to keep pace with a rapidly changing market.
In October 2001 we committed to our government that we would deliver draft legislation reflecting significant streamlining and simplification at the end of 2003. To ensure we meet that target, we plan to publish for comment in April draft legislation and rules incorporating our proposals. In the meantime, we will work with our CSA colleagues to simplify national regulatory requirements and, if possible, minimize the differences between our approach and the ultimate product of the USL process.
Request for comments
There is still time to adopt more streamlining and simplification in the drafting of the USL. If you believe that regulatory simplification should be an important goal for the USL project, we encourage you to mention that in your comments. Please send your comments to the addresses set out in the CSA notice.
January 30, 2003
Douglas M. Hyndman
Ref: CSA Notice and Request for Comment 11-402
BC Notice 2002/12
BC Notice 2002/20
BC Notice 2002/45
BC Notice 2002/46
This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.