The chairman of the Ontario Securities Commission today called on his fellow regulators to take a hard look at the merits of principles-based regulation.

David Wilson was speaking at the Securities Superconference in Toronto. Concerning what he called “the longstanding debate over the place of principles and rules as the basis of securities regulation”, Wilson suggested, “Now is a good time for all of us to take another hard look at that question. It is a time for some further regulatory reflection, especially in light of the discussion surrounding the evolution of the passport system, the Crawford Blueprint, and the recent decision by British Columbia to defer legislation relating to regulatory change.”

He indicated that he doesn’t come to this debate with any preconceptions. “What I want to do more than anything else is take as many opportunities as possible to discuss the advantages of both rules-based and principles-based regulation with my CSA colleagues and stakeholders in the system,” he said.

Wilson noted that rules and principles are not mutually exclusive. “The reality is that both are needed to achieve the most effective regulation possible,” he said. “And neither approach should be taken as a regulatory license to micro-manage. Rather, what we need to do is set out a clear framework and then enforce it, not interfere at will with the workings of the markets.”

Apart from restarting that debate, he also tackled corporate governance, pooled investment vehicles and enforcement.

On the subject of governance, Wilson said that if regulators adopt internal control reporting rules similar to those of the US, they must adapt them to suit the distinct needs of the Canadian market. “We also must seek an appropriate approach to executive compensation disclosure for our market,” he noted.

Looking at pooled vehicles, Wilson said that regulators, “have pretty much determined that hedge funds per se do not require their own separate regulatory regime. But we must ensure that the existing rules that apply to all pooled fund vehicles are being applied appropriately and effectively to the innovative and rapidly growing hedge fund sector.” But, he said it’s important to review the appropriateness of the prospectus exemption granted to Principal Protected Notes, which is one way that hedge funds have found their way into the hands of small retail investors.

He added that the CSA is still working on a proposed rule that would impose a minimum, consistent standard of governance for all publicly offered investment funds.

Once again, he stressed the need for fair, vigorous and timely enforcement. “One of the best ways we are doing that is by building partnerships and relationships with other agencies,” he said. “We are attempting to close the historic gap between securities regulation and criminal law enforcement. We’re building bridges with enforcement authorities in the RCMP – through the IMETs initiative – and the Ministry of the Attorney General. I’m convinced that by pooling talent and resources and through enhanced cooperation, we will become more effective in the enforcement area.”

“We are also fostering alliances with our counterparts in securities regulation. At the OSC, as I mentioned earlier, we work closely with the CSA, and are strengthening ties with the SEC. In an era when fraudulent activities can span provincial and national borders, regulators must be able to work together seamlessly,” he noted.