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Thinking outside the box: the CSA as a fintech adopter (July 18, 2019)

The CSA’s renewed system project is an opportunity for the regulator to innovate

Guest column for Investment Executive

By: Paul Bourque, President and CEO, The Investment Funds Institute of Canada

When the Canadian Securities Administrators (CSA) and fintechs are mentioned in the same sentence, it is usually in the context of regulatory sandbox initiatives underway across Canada and around the world. These initiatives are a great way to encourage innovation and competition without upending the regulatory status quo.

But with the CSA’s new integrated national information and filing system — referred to by the regulator as “the renewed system” — there is an opportunity for the CSA itself to play in the fintech sandbox in an effort to reduce costs and streamline regulatory and industry operations for the ultimate benefit of retail investors.

The CSA owns and manages a number of user-pay electronic filing systems for market participants. The most important of these are the system for electronic data analysis and reporting (SEDAR) for public issuers; the national registration database (NRD) for registered firms and individuals; and the system for electronic disclosure by insiders (SEDI) for public company insiders. These systems provide a single electronic portal for filing prospectuses, continuous disclosure documents, financial statements, registration applications and information, insider trading reports, fees and more.

Capital markets function more efficiently as a result of these systems, but they are now almost 20 years old and long overdue for replacement. In its 2016-2019 business plan, the CSA announced that it had initiated the renewed system project to replace its information technology systems with a “single, intuitive and secure filing system for regulators and market participants.”

Fortunately, technological advances over the past 20 years could provide market participants with seamless access to the information they have filed on the CSA systems through the implementation of an application programming interface (API). This would allow a two-way flow of information, enabling market participants to use their own data in their business operations and compliance supervision activities.

The potential benefits of this project to the regulators, market participants and investors are significant. For the regulators, a single structured database presents the opportunity to streamline internal work flow processes, break down silos, develop analytics to optimize organizational performance, target risks and predict non-compliance. For market participants, the opportunity to easily access the information and data they are required to file would reduce manual multiple data entry, streamline their own internal work processes and improve compliance by enabling firms to better identify and manage risk.

On May 2, 2019 the CSA announced next steps in this project, including the publication for comment of a new system fee rule and filing requirements. The CSA clarified that the renewed system will not cover data and communications between individual regulators and market participants on things like compliance examinations, annual risk questionnaires and investigations. While the renewed system may not be the best vehicle for this type of data transfer, opportunities to enhance effectiveness and reduce cost are important objectives.

The biggest winners in regulatory technology innovation will be retail investors. Streamlined regulatory and industry operations will reduce the direct and indirect costs of regulation, increase regulatory and market participant compliance capability and enhance investor protection.

What is essential for all this to happen is for the regulators to think outside the box.