TORONTO (HedgeWorld.com)--In his keynote address for the Canadian Securities Administrators' "superconference," the chairman of the Ontario Securities Commission said that there was no need for a special regulatory regime for hedge funds--but that there may be a greater role for the Mounties to play in securities regulation generally.
In his address, David Wilson, who was appointed to the OSC last year after a career in banking and corporate finance, spoke on a broad theme, "Enhancing Prosperity: Fair, Efficient, and Balanced Regulation."
He said that the difference between an advanced economy and an underdeveloped economy is largely a matter of trust, and he said "that has to include the confidence people need to trust strangers with their capital," which is the cause served by sound regulation.
Under that theme, he divided his remarks into four headings: corporate governance, pooled investment vehicles, enforcement, and the difference between principles-based and rules-based regulation.
Under the heading of corporate governance, he asked whether certain of the provisions of the recent U.S. reform, Sarbanes-Oxley, ought to be imported into Canada. He came to no conclusion on that point, except to say that "if we adopt foreign regulations, we must adapt them to suit the distinct needs of the Canadian market," which is home to a relatively large number of closely held companies.
Under the heading of investment pools, Mr. Wilson observed that the hedge fund market in Canada has expanded dramatically in recent years, to more than C$30 billion (US$26.37 billion) in assets under management. Given that expansion, and the scandal surrounding Portus, Canada's regulators naturally had to study the question of whether new rules were required. In recent months, they have satisfied themselves that "hedge funds per se do not require their own separate regulatory regime." But they still have to ensure that "the existing rules that apply to all pooled fund vehicles are being applied appropriately and effectively to the innovative and rapidly growing hedge fund sector."
As an example of how this task might be accomplished, he referred to a prospectus exemption for principle-protected notes. He is skeptical whether the exemption is suitable for such complicated structured products.
Under the heading of enforcement of securities regulations, Mr. Wilson said that the OSC is "building bridges with enforcement authorities in the" Royal Canadian Mounted Police and the attorney general's office, in order to close the historic gap between securities regulation and criminal law enforcement. Also, the OSC is strengthening ties with the U.S. Securities and Exchange Commission.
"In an era when fraudulent activities can span provincial and national borders, regulators must be able to work together seamlessly."
Finally, under the heading of rules-versus-principles, Mr. Wilson said that the two approaches aren't mutually exclusive, and that the balance between the two "will depend upon the context and the goals of a particular regulatory initiative."
Mr. Wilson is a past chairman of the Investment Dealers Association of Canada. He has been an investment research analyst at Dominion Securities, a financial analyst at the Toronto-Dominion Bank, and president as well as deputy chief executive of ScotiaMcLeod, which was reorganized as Scotia Capital Markets in 1995.
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