Targeting Regulatory Burden – Today and Tomorrow
Reducing the burden is not de-regulation, nor does it require a choice between investor protection and competitive markets. In fact, effective regulation is necessary to maintain market integrity, investor confidence and globally competitive capital markets. The key is getting the balance right.
In our view, controlling the burden and cost of regulation – for today and for tomorrow – requires the introduction of systemic changes in four key areas: 1) to the rules themselves, 2) to the rule development process, 3) to the rule approval and oversight process and 4) to commission operations and systems. Taken together, these changes have the potential to control the growth of regulation, improve regulatory efficiency and reduce the regulatory burden.
1) Changes to the rules: Most regulation, including securities regulation, serves a reasonable purpose. However, regulation, no matter how well intentioned, can have adverse effects such as limiting competition, stifling innovation, increasing costs, or creating other undesired outcomes.
Instead of looking at the entire rule book, we should focus on the incremental costs of unnecessary or ineffective rules. Such rules may be unnecessary or ineffective for a variety of reasons. For example, they are not achieving their intended regulatory objective, they are the wrong regulatory solution, they are not being enforced or they require wholesale exemptions. Regulators should look for opportunities to eliminate unnecessary or ineffective rules on a continuous basis.
The costs of unnecessary and ineffective rules are shared by the regulatory agency that administers them and the market participants that must comply with them. Ultimately, all these costs are borne by investors.
2) Changes to the rule development process: IFIC believes there should be more discipline in the rule development process. This begins with an accurate and comprehensive description of the problem; more specifically, this problem definition should not begin with an assumption that another rule is needed. To help build strong stakeholder support for the solution, the problem definition should be published for consultation.
In addition, we think the proposal of new rules should include consideration of the implementation costs – both a pre-implementation estimate of the direct costs to the industry, as well as a post-implementation impact analysis. There should also be a clear definition of success and metrics to assess progress.
It is important to remember that not every market issue requires a new rule. Rigorous compliance and enforcement of current rules could also achieve the desired outcome.
3) Changes to the rule approval and oversight process: Governments have a key role to play in regulatory burden reduction.
Governments could require that any new rule proposal include a count of the new requirements as well as identification of a certain number of existing requirements that would no longer be necessary. Requiring the Chair of the agency or the Deputy Minister to certify the requirements count would also encourage the consideration of whether a non-rule solution might be more effective in addressing the problem.
Governments could require ministerial approval to both publish a new rule for comment and to approve the rule. This process would increase government oversight of the proposal and encourage early and full discussion of the merits of the proposal with the Minister.
4) Changes to the administration of the rules and commission operations: How the commissions administer the rules can significantly reduce the regulatory burden. Commission compliance staff who consistently focus on the regulatory outcome to be achieved, while providing market participants the latitude to figure out the best way to achieve the outcome in the context of their business, would significantly reduce the regulatory burden.
Technology has an important role to play. The CSA is currently working to rebuild the CSA electronic filing systems, including SEDAR, SEDI and NRD. This project has the potential to significantly enhance regulatory effectiveness and control industry costs.
Electronic filings populating a single structured data base with workflow connections to the regulators and market participants has the potential to provide analytic insights, predictive risk modeling as well as improve the efficiency of filing and review processes. To derive the most benefit from the new systems, it is important to collaborate with the industry to leverage this new technology as much as possible.
The industry stands ready to assist with this and all other regulatory burden reduction initiatives. We would welcome the opportunity to participate.
Paul C. Bourque
President & CEO
Investment Funds Institute of Canada