The Ontario Securities Commission has issued a comment letter from its chair, David Brown, to the chair of the B.C. Securities Commission, Doug Hyndman, lambasting the BCSC’s proposed new regulatory model.

“Overall, we are concerned that the BCSC has chosen to pursue a significant shift in policy direction that will undermine the progress the Canadian Securities Administrators has achieved to harmonize securities regulation across Canada. If your proposals are implemented, it will further fragment securities regulation in Canada and open a significant gap in securities regulation between B.C., the rest of Canada, the U.S. and other major world markets,” the letter warns.

Brown argues that the BCSC proposals are not consistent with the direction of the Uniform Securities Legislation project to harmonize and streamline regulation across Canada. “Your criticism of USL as a missed opportunity for regulatory reform undermines the importance of the project and the significant progress that has been achieved with the release of the concept paper, Blueprint for Uniform Securities Laws for Canada,” Brown writes.

The letter notes that the BCSC’s proposals are driven by the BC government’s agenda to reduce regulation across all government sectors by one third. Brown says the BCSC’s approach of focusing on the volume of rules is ignoring the problems of fragmented regulation.

Brown expresses concern that the BCSC model will not provide sufficient protection for investors, and that it has gone too far in replacing rules with principles. Brown insists that both principles and rules are necessary in the formulation of effective securities regulation.

The letter also suggests that the BCSC model won’t cut costs for market players. ” Your model does not take into account the duplication, inefficiency and increased costs for market participants complying with the requirements of different securities regulatory regimes,” Brown writes. He warns that regulation could increasingly fall into the hands of the courts under this system, rather than the regulators.

Brown states that the OSC does not agree that principles, a Code of Conduct and Guidelines should serve as a replacement for existing prescriptive legislative or SRO requirements.

He warns that investor redress will be “further compromised by your proposed elimination of specific minimum capital requirements for participating firms”. It rejects the idea of firm-only registration. “We would like to see more discussion on the enforceability of principles, a cost-benefit analysis of the implications of this proposal and some discussion of how SROs fit into your proposals,” he writes.

Brown also expresses concern about the BCSC’s proposed Continuous Market Access System, as it differs from the CSA’s Integrated Disclosure System proposal published by the CSA in January 2000. Particularly he is worried that: the CMA proposal eliminates the prospectus and the requirement for issuers to be responsible to investors for the completeness and accuracy of the information that is provided.

Brown also writes that the OSC is concerned that the BCSC proposes significant changes from the CSA’s statutory civil liability regime. “The issues relevant to creating an effective deterrent civil liability regime for secondary market investors have been considered in Canada on numerous occasions. Most recently, the CSA engaged in a robust and comprehensive study of the Allen Committee proposals, developed draft legislation for public consultation and considered comments received on the legislation. We need to proceed with the CSA’s proposals — not reopen them to a further round of debate. We hope that other jurisdictions including B.C. will follow the Ontario Government’s lead in enacting this landmark legislation,” Brown concludes.