Ian Russell is President and CEO of the Investment Industry Association of Canada
In its November, 2018, Economic Outlook and Fiscal Review, the Ontario government announced a series of policy moves to help restore confidence and sustain growth in the province.
A rising public debt burden placed limits on the government’s options. The Minister of Finance rightly focused on deregulation, the policy lever with perhaps the greatest potential to invigorate the economy. All government departments and agencies, including securities regulators, will be required to meet the target of reducing regulatory requirements by 25 per cent by 2022.
The B.C. government introduced a similar regulatory reform model nearly 20 years ago, setting a target to reduce the regulatory burden by one-third in three years, a goal that was surpassed in 2004. For every new regulatory requirement, two had to be eliminated; this was later modified to one-in, one-out. The Ontario model will likely require more aggressive rule-pruning.
This is the first time the Ontario Securities Commission (OSC) will be subject to a defined deregulation target. It is long overdue. Over the past five years, the OSC has undertaken massive and fast-paced regulatory reform without a corresponding assessment of the costs and benefits of new and existing rules and regulations. The pace of reform has left a bloated rule book containing inefficient, duplicative and unnecessary rules. At the same time, dramatic changes in investor behavior, market practices and market structure have contributed to increasingly outmoded rules and regulations.
The reforms have led to a substantial boost in compliance costs. The competitive tempo in the industry, however, has limited increases in charges and fees, leaving the option of reduction in services across the spectrum of wealth-management platforms. Small investors with small portfolios are the primary casualties of the regulatory burden. These investors have limited access to full-service accounts, face lower levels of service and are often relegated to online robo-advisers and wealth platforms featuring little advice. Yet, the small investor, just as much as the large investor, needs solid guidance to build retirement savings and navigate through the investment and tax complexities of savings programs such as ESOPs and RESPs, and retirement programs such as RRSPs and RRIFs.
Further, the excessive rules related to capital raising, notably disclosure requirements, have added heavily to issuer costs and impaired financing efficiencies. Small- and mid-sized companies have been more negatively affected, as they devote a disproportionate amount of time and resources to regulatory compliance.
The recently announced OSC Burden Reduction Task Force, which will oversee efforts to reduce the regulatory burden in the industry, is a positive step, and will greatly assist in meeting the Ontario government’s deregulation target. However, the OSC must work in concert with the umbrella organization of Canada’s provincial and territorial securities regulators – the Canadian Securities Administrators (CSA). The securities commissions in the CSA are committed to national policies and instruments that include the core elements of the securities rule book to achieve rule harmonization for an efficient national marketplace. The OSC likely cannot meet its deregulation targets effectively without tackling the rules embedded in national policies. The CSA must work in tandem with the OSC to pare back national policies and instruments to achieve effective deregulation, yet maintain a harmonized national rule book. There will likely be agreement among the larger commissions on collaborative deregulation, given that the British Columbia Securities Commission is part of a provincial deregulation framework, and the Alberta Leader of the Opposition has signalled implementing a deregulation model similar to B.C.'s, if elected.
Securities regulators across the country need to take a deep breath, step away from the treadmill of rule-making and devote efforts to streamlining and shrinking the securities rule book. The new Ontario government has set the benchmark for deregulation that the province’s regulators must meet. The benefits will fall to small investors and small- and mid-sized businesses, both critical to confidence as well as economic prosperity.