Queen’s Professor Counters Finance Minister’s Bid for National Securities Regulator

Posted on June 4, 2008

‘Give up On National Regulator – National Securities Enforcement Agency More Achievable’

Kingston, ON (June 4, 2008) – Last week, Finance Minister Jim Flaherty with great fanfare once again attempted to muster enthusiasm for a Canada-wide national securities regulator among his provincial counterparts, with little in the way of results. “Maybe now is the time to look at more creative alternatives,” suggests Steven Salterio, Professor of Business and Director of the CA-Queen’s Centre for Governance. “If we can’t achieve the international norm of having a single national securities regulator we need to leave the various provincial regulators in place and move the enforcement part into a single national securities enforcement body,” he adds.

Professor Salterio’s proposed approach would allow all jurisdictions to keep their prized involvement in setting the regulations but the interests of investors would be put front and centre where they belong in enforcement.

What’s the difference between a regulatory and an enforcement organization? A national securities enforcement body would be a focused organization with the sole mandate to investigate and enforce the various multilateral and national securities laws and regulations that are in effect across Canada. The power to make laws and regulations would remain where it has been for the last hundred years, with the provincial government and their securities commissions. Therefore, there is no loss of sovereignty or jurisdiction at the provincial level but enforcement makes a quantum leap forward.

“After all, as we wait for the sixth committee in five years — Mr. Flaherty’s recently appointed Hockin expert panel — to weigh in on what is becoming a quest for the ‘holy grail’ the International Monetary Fund (IMF) characterizes Canada as a country where the enforcement of securities laws is`still in need of considerable improvement’. This can not be allowed to continue. The finance ministers’ meeting is yet another sign that there is little hope that such national securities commission is any closer to coming into being.”

Salterio lists these advantages to having a national securities enforcement body:
Focus: The body would only focus on investigation and enforcement of regulations leaving day-to-day administration and adjudications of securities regulations at the provincial level. This also ends the appearance of conflict when Securities Commissioners have the combined roles as regulators, police, prosecutors and judges.
Expertise and capacity development: As an elite enforcement unit with national level responsibilities, the organization would be better placed to attract the best and the brightest lawyers and accountants.
Specialized prosecution support teams: Research shows that there has been relatively little success in securities law prosecution in Canada. This has been attributed in part to the need to educate judges about complex technical business and accounting matters. Crown prosecutors need support from dedicated teams of lawyers and accountants to ensure that they are able to clearly explain these matters to judges in a manner that makes sense.
Economies of scale in enforcement: Research in other countries suggests that there are economies of scale from enforcement. The larger the enforcement unit, the lower the cost per investigation.

“While there are many advantages to such an enforcement agency it is certainly not a cure for what ails the Canadian securities markets,” said Salterio. “For example, it wouldn’t deal with the problem of lowest common denominator regulation that occurs in Canada due to the need to negotiate, among thirteen provincial and territorial regulators, the national and multilateral securities regulations.

“However, a well-resourced national enforcement body would be a huge step forward for the protection of investors in Canadian capital markets in both appearance and in reality. While others dream of perfection and national securities regulators, the international reputation of our capital markets require that we should be a tad more Canadian and be more realistic: let’s create an enforcement agency that has some real teeth. And let’s do it soon.”

Professor Steven Salterio is a PricewaterhouseCoopers/Tom O’Neill Faculty Research Fellow in Accounting and Director of the CA-Queen’s Centre for Governance. He is also the 2008 recipient of the Haim Falk Award for Distinguished Contribution to Accounting Thought.


To book an interview with Professor Salterio, please contact:
Lisa Brophy-Gervais
Queen’s School of Business

About the CA-Queen’s Centre for Governance at Queen’s School of Business
CA-Queen’s Centre for Governance goal is to raise the bar on Canadian governance research and convey the implications of the research to fellow academics, students and the public at large. Situated at Queen’s School of Business, one of the world’s premier business schools, the Centre conducts cutting edge basic and applied research on corporate governance issues dealing with such issues as fraud prevention through better internal control and improving Canadian securities regulation. The Centre is also actively involved in the not for profit sector through the associated Fundamental of Governance for Boards of municipal, provincial and federal agencies, and not-for-profit organizations executive development course, case writing, applied research and now the Voluntary Sector Reporting Awards.