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Is Flexible Regulation Better for the Canadian Securities Markets?

Traders Magazine Online News, February 8, 2019

Nick Savona

Over the last few decades, we have witnessed changes in the way securities markets are regulated. New technologies and innovations have enabled various stakeholders and actors to contribute to this “new governance”. In this paper, I will explain the differences between the new flexible regulatory approach and the more traditional approach, with a focus on the benefits of the former and how it has been implemented in the Canadian securities markets. In order for flexible regulation to work, regulators and the regulated need to collaborate and come together to solve problems as opposed to only using a “top-down” model. The focus must be on outcomes in addition to process. Principles must guide registrants on how to exercise their best judgment to achieve outcomes that safeguard the integrity of the capital markets. Flexible regulation allows registrants to adapt to changing circumstances, solve problems as they arise and measure effectiveness.

Flexible Regulation Approach v Traditional

Cristie Ford states that we now live in a more complex, interconnected and globalized world; we must tailor our responses to these times, and not to earlier ones.[1] Private sector innovation coupled with the right regulatory tools that engage the private market, reflect what some scholars have referred to as a “complementarity” approach, which neither delegates regulatory authority nor relies wholly on top-down approaches or “belt-and-suspenders style duplication”. Regulators and the private market work in tandem, each expending their resources according to their relative strengths.[2]

Traditional approaches to regulation tend to focus on past examples of misconduct, while failing to anticipate future problems. In the aftermath of the Great Depression, most western countries were concerned with building a strong, positive state presence in response to the devastation caused to the economy.[3] Then President Franklin Delano Roosevelt established the “New Deal”. This was widely understood as one of the most significant events in American politics in the 20th century. As Bruce Ackerman has described:

. . . [a] half-century ago, our legal system was reeling under one of the greatest shocks in its history. Although America had experienced many depressions before, it had never confided political power to a leadership so evidently willing to respond by questioning the legitimacy of laissez faire itself.[4]

President Clinton stated that the New Deal “helped to restore our Nation to prosperity and defined the relationship between our people and their Government for half a century….That approach worked in its time. But we today, we face a very different time and very different conditions….the era of big government is over.”[5]

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