Hyndman outlines plan for streamlining regulation
It was British Columbia Securities Commission Chair Doug Hyndman’s turn before the Senate Standing Committee on Banking, Trade & Commerce today, and he delivered the BCSC’s message of fewer rules and more market discipline for securities industry scofflaws.
Hyndman cautioned against answering current scandals with more rules, particularly ones designed to fit the U.S. market. “We hear calls every day for Canadian regulators to copy the Sarbanes-Oxley legislation adopted last summer in the United States, and impose on our markets more detailed and prescriptive rules that would further increase the burden of regulation with, in many cases, little prospect of better investor protection. Canadian regulators would do a serious disservice to Canadian markets and investors if we adopt more rules just to keep pace with our neighbours.”
Hyndman said that we should pay attention to what is happening in the U.S., “but we shouldn’t adopt new rules just for the sake of harmonization.” Instead, he said, we should strengthen deterrence in Canadian markets with, “a balance among regulatory enforcement, criminal prosecution, and civil liability.”
Hyndman warned that regulation creates burdens which are ultimately paid for by investors, that it can stifle innovation, and have unintended consequences. He suggested that the market be allowed to impose its own discipline.
He also revealed that recent BCSC focus groups found that “the people least convinced of the benefits of more prescriptive governance requirements were institutional investors.” Rather than more governance rules, Hyndman said we “should focus on better disclosure of governance practices”.
Hyndman warned that the BCSC is worried that some of the proposed changes to accounting rules and practices “might backfire and reduce the quality of financial reporting by smaller public companies”. In a deviation from his prepared text, Hyndman also suggested in his remarks that some of the proposed new rules restricting analysts are ill-conceived.
“My major point today is that we should not let the current focus on Enron and Sarbanes-Oxley distract us from the important task of simplifying and streamlining regulation. We need to do this both to make regulation more effective and to improve the efficiency and competitiveness of our markets.”
Hyndman said regulators must do five things:
- devote attention to the most significant threats to investors and use the best mix of regulatory tools to fix them;
- limit the volume of rules and make them clear and simple;
- foster a culture of compliance among market participants;
- act decisively against misconduct in the markets; and
- educate and inform investors, companies and the investment industry about the risks, rewards, and responsibilities for those who participate in our capital markets.
The senators asked Hyndman about the prospect of a national securities commission. He said that officially the BCSC has no position on this, and that it is up to politicians to decide.