The wholesale adoption in Canada of U.S.-style regulatory reforms such as the Sarbanes-Oxley Act could impose undue costs on Canadian market participants, according to a Policy Comment released today by the Capital Markets Institute at the University of Toronto.

“The Canadian Response to Sarbanes-Oxley,” provides an analysis of the key challenges faced by Canadian securities regulators and market participants in responding to this legislation, enacted in the U.S. in July 2002.

The comment, the first of a three part series which analyzes proposed regulatory changes in the Canadian capital markets, is available atwww.capitalmarketsinstitute.ca

“It is not clear that the corporate debacles of the past 15 months were the root cause of recent lackluster performance in equity markets,” said Christopher Nicholls, the Purdy Crawford Chair in Business Law at Dalhousie University Law School and author of the Policy Comment. “Therefore, investors and issuers who are too eager to blame the scandals for recent abysmal returns are, in many cases, urging a rash regulatory overreaction that could backfire by imposing needless extra costs on markets participants.”

The Policy Comment recognizes the need for a proportionate regulatory response to recent financial scandals, but cautions against reforms quickly “cobbled together” in an effort to allay investor fears in the short-term. It stresses that the role of securities regulators is to foster fair and efficient markets investors can trust, not to fuel their desire to purchase stocks in order to restore battered share prices.

The Policy Comment indicates that much of the ongoing debate over differing standards for different size issuers is unhelpful since public issuers are already subject to different standards by virtue of their choice of exchange.

“The policy issue, therefore, is not whether junior and senior issuers ought ever to be subject to different rules. They already are. The only question is what minimum basic standards ought to be imposed — where the proverbial floor ought to be,” said Nicholls.

The proposal that CEOs/CFOs personally certify their financial statements is one of the few proposals that appears to have universal support.