Pushing back against a tide of needless red tape is essential to efficiency and innovation. Yet, policy-makers must remember that the securities industry is one in which robust regulation typically represents a catalyst for business – not a barrier.
A recent report from the Committee on the Global Financial System (CGFS), a global group of central bankers, examines the necessary conditions for healthy capital markets. The report concludes that one of the most essential features of deep, liquid markets is effective regulation.
The report concludes that the presence of regulators that are independent, have adequate resources and are armed with strong enforcement powers are capable of protecting investors and can ensure that markets are fair, thereby lowering issuance costs. Fair markets, in turn, inspire investor confidence, which helps drive liquidity.
The report, coming at a time when regulation is being characterized primarily as a “burden” for business, serves as a useful reminder of the critical role that rules play in nurturing healthy, vibrant markets. Clear rules provide the sort of certainty that is essential to functioning markets.
Not only do markets need robust regulations to keep business humming, but effective enforcement of those rules is needed as well. To that end, the CGFS report also recommends that policy-makers that aim to nurture markets should seek to strengthen investor protection and bolster enforcement – both by regulators and by private enforcement through the courts.
The CGFS report concludes that this kind of strong market regulation – combined with macroeconomic stability, a sound legal system and efficient market infrastructure – creates the conditions required to support vigorous, vital capital markets.
As policy-makers seek to chop the compliance burden, they must remain mindful of the essential role of regulation in capital markets. While there surely is plenty of needless duplication, redundancy and stifling bureaucracy built into Canada’s regulatory system that should be rooted out, what’s more important is that fundamental investor safeguards must be maintained – even strengthened.
Paperwork can go; investor protections cannot.
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