In the ongoing debate about how to create a more efficient, harmonized structure for the securities industry, two competing models have been on the table for awhile — the passport system and the common regulator. Given the strong views held by each camp, resolution of this debate is not imminent.
It is encouraging that all parties seem to agree that continuing to work toward harmonization and consistency of the current rules is a worthwhile, even a necessary endeavour. We have several examples of this, the latest being the release of the draft National Instrument 31-103: Registration Requirements, which has been a joint effort of all members of the Canadian Securities Administrators — who are to be congratulated for their approach.
Until a decision has been made on the regulatory model, it is up to everyone to ensure consistent treatment of the consumer experience and greater clarity and consistency of rules in all jurisdictions. This can be achieved, in some areas, by making adjustments to rules that are already in place and working reasonably well.
The proposed NI 11-102: Pass-port System, recently out for comment by the seven securities commissions that favour the passport model, would replace the current 13-jurisdiction process with one streamlined version in three significant areas: prospectus filing and clearance; participant registration and exemptions from registration; and prospectus requirements. NI 11-102 includes proposals that will admittedly make the current process better. But because Ontario prefers the common regulator model, NI 11-102 would not apply there, raising the prospect that we may lose the gains we have made in bringing efficiency to the regulatory process for issuers operating in multiple Canadian jurisdictions.
Why not make adjustments to the all-inclusive rules currently in place? Here are a few examples of how that could occur.
MUTUAL RELIANCE
Take the issue of mutual fund prospectus filing and clearance. Mutual fund managers prepare their funds’ prospectuses, and mutual funds currently operate in accordance with two established national instruments: 81-101 and 81-102. Since 1999, filing of prospectuses and related disclosure information is governed by a national policy that set up the mutual reliance review system, a national system that has worked extremely well in simplifying the prospectus filing and clearance system for issuers operating in multiple jurisdictions and providing, in essence, a one-stop filing process.
Rather than bringing in new rules, one option is to make the current ones more efficient by adding into the MRRS the improvements cited in NI 11-102. For example, one proposed change would see a decision of the principal jurisdiction automatically apply in all other jurisdictions — an improvement to the process in the passport provinces only. If included in the current rules, it would provide not only a better system but one applicable to all jurisdictions.
Another example regards registration and prospectus exemptions. National instrument 45-106 has created an essentially harmonized process for companies to obtain exemptions from registration and prospectus requirements. As the Investment Funds Institute of Canada proposes, NI 11-102 offers enhancements that aren’t in place now but can be achieved by improving the current national rules rather than replacing them.
It’s crucial for IFIC members to have a harmonized, consistent system in place to make life easier for investors, managers, dealers and advisors in all jurisdictions. The decision of whether there will be a passport or common regulator remains with politicians. In the meantime, we owe it to investors to make the current system more cohesive. IE
Joanne De Laurentiis is president and CEO of the Investment Funds Institute of Canada.