Speaking at the first Conference of Self-Regulatory Organizations in Toronto today, Doug Hyndman, chair BC Securities Commission, called for competition among SROs, and a new way of thinking about securities regulation generally.

“I think we should step back and review the new SRO structure we’ve created in Canada. We used to have five SROs — the IDA and four exchanges — that worked cooperatively but were also in competition. Dealers had some ability to switch their audit jurisdictions from one SRO to another, which provided at least some incentive for efficiency. As a result of the consolidation of the exchanges and the restructuring of the SROs, our system is moving toward functional monopolies, under which most dealers have no choice about which SRO to deal with,” he said.

“I’m beginning to wonder whether we wouldn’t be better to encourage a structure where there is competition among SROs. The consolidation of member regulation in the IDA was promoted as an efficiency measure — a way of reducing the costs of self-regulation. That certainly hasn’t happened and, while there are many other explanations for the increasing costs, we should seriously consider whether the elimination of competition has been a factor,” he noted.

Hyndman is not suggesting at return to the old regulatory structure, or that SROs should be split up. “However, I think we should inject the idea of competition among SROs into our thinking, and not automatically assume, as many tend to do, that we would make the world a better place if we could merge all of your organizations into one,” he said.

Hyndman pledged to coordinate SRO oversight among the provinces. “We oversee more SROs than before, our reliance on SROs to regulate market conduct is increasing, and we have to coordinate our oversight programs,” he said.

He said that in its next three-year strategic plan, the BCSC will be aiming to review its recognized SROs to ensure that its reliance on them is justified.

Hynman noted that it’s important to preserve “the self” in self-regulation. “Securities commissions rely on SROs to do things we would otherwise have to do ourselves, and we are naturally inclined to try to make the SROs do those things the same way we would do them. I think it’s important that we restrain ourselves, and defer where appropriate to the front-line expertise of the SROs. If we turn the SROs into mere extensions of the commissions, we will lose the benefits of self-regulation.”

He also said that the Canadian Securities Administrators will release a concept paper tomorrow, describing a plan for a new securities act and rules that would, for the most part, be uniform across Canada. “We are also looking to greatly streamline the process for registering in multiple jurisdictions, which is a real bugbear for the securities industry,” he said.