A new paper from the Capital Markets Institute at the University of Toronto argues that Canada faces a diminished role in global markets unless a more effective securities regulatory structure is identified and implemented.

The paper analyzes current proposals for reform in an attempt to determine their strengths and weaknesses. It was written by Doug Harris, director of the CMI and an assistant professor at U of T’s Faculty of Law, and edited by James Baillie, counsel at Torys.

The paper calls for a joint federal-provincial committee to conduct consultation and put forward a proposal for a securities regulatory structure. The immediate and critical role for all levels of government is to declare their commitment to the effort, it says. That includes developing the empirical and theoretical groundwork necessary for the debate and forming a joint committee to translate that data into concrete recommendations. Last week, Finance Minister John Manley appointed Harold Mackay to recommend a process to determine the best securities regulatory system for Canada.

“Canada is at a critical moment: unless we actively design a national capital markets strategy, we risk allowing external forces to define for us a diminished and dependant role in the global capital markets,” said Harris. “We cannot develop and implement a national capital markets strategy so long as legislators and regulators continue to pursue overlapping and inconsistent regulatory strategies. We need to identify, and implement on an urgent basis, an efficient and effective securities regulatory structure.”

The paper was produced with the financial support of the Canadian Foundation for Investor Education. It attempts to distill the learning of previous reform efforts. A symposium on securities regulatory structure had been sponsored by the CMI in March 2002.

Some of the proposals set forth are:

> improving the status quo through enhanced coordination by the Canadian Securities Administrators.

> centralizing regulation through reciprocal delegation.

> harmonization of regulation through uniform legislation.

> creating a federal securities regulatory structure to assume exclusive jurisdiction over at least inter-provincial and international securities transactions.

> opening securities regulation up to regulatory competition among various provincial governments and the federal government.

This paper looks at the importance of local and regional interests, the costs associated with the current fragmented structure, the benefits and risks of regulatory competition and the importance of Australia’s experience for the comparative lessons it may offer for Canada.