The Investment Industry Association of Canada (IIAC) remains bullish on its recommendation that this province would be better served by signing on to the proposed co-operative capital markets regulatory system than continuing to go it alone.
But even IIAC president and CEO Ian Russell says it’s more and more likely that any new system governing security regulation will likely be a mixed model.
“In that regime, what's important is that we have an effective functioning of the capital markets as a whole; that is to say there has to be a clear recognition of the rules and regulations for the province outside so that it's acceptable with the regulations inside,” he told the Telegram last month following a meeting with provincial government officials.
“Securities can be bought and sold, distributed freely whether you're in the co-operative or outside the co-operative so we have a free-flowing national marketplace, that's of the utmost importance and I think everybody understands that will happen.”
In such a situation, Russell says introducing an enforcement mechanism to ensure as much rule harmonization as possible will be key.
Currently, Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and the Yukon have signed on as supporters of a Capital Markets Authority aimed at administering the proposed Capital Markets Stability Act and the Capital Markets Act. Nova Scotia has said it will throw its hat in the ring before the current fiscal year is out.
That leaves just Alberta, Manitoba, Quebec and Newfoundland and Labrador as the only provinces not on board.
The latter, Russell says, stands to gain by being on the inside as opposed to staying with the staunch outliers simply because they’ll have a bigger role to play.
“It's going to be difficult for a small province outside, even with harmonized rules, even with access to the bigger market,” suggests Russell. “Newfoundland doesn't have a lot of resources in securities regulation to begin with and I think that in a co-operative model they'd probably have more clout.”
The arguments in favour of a national securities regulator started following the 2008 economic meltdown, but was quickly shot down as unconstitutional by the Supreme Court of Canada, which found that the Ottawa doesn’t have the jurisdiction to make changes to the 13 existing provincial systems. A couple of years later, the plan for a co-operative regulator emerged, and while it has continued to take shape, there’s been very little said publicly about the progress of the system’s structure, the regulations or the necessary legislation.
Supporters claim it will quicken response to emerging issues while also reducing red tape, costs for investors and the risks that come with individual jurisdictions enforcing regulations. Detractors, meanwhile, says the current model works just fine and that relative market stability is proof.
Russell says if Newfoundland and Labrador considers joining the Capital Markets Authority Implementation Organization (CMAIO), they should leverage what’s important to them in negotiations.
“What's important from Newfoundland’s standpoint is that the regulations are roughly the same and we have a mechanism to ensure they're harmonized.”
The co-operative regulator discussion aside, the IIAC also used the sit down as an opportunity to espouse the virtues and benefits of small business as a means to offset a slowdown in large scale investment.
Russell says the IIAC and the provincial government are thinking along the same lines when it comes to incentives to spur investment in small business.
“I think they understand the importance of small business investment in the province,” he says. “I think they also understand there's a more constructive, positive role they can play in coordinating between the government policies and these university commercial linkages or hubs to make them more viable.”
Because the federal tax system can play a significant role in, the IIAC advises taking ideas to Ottawa and see if there’s anything the Government of Canada can do to grease the wheels.
Another topic of conversation centred around addressing the entrepreneurial curve. Russell says of the 1.1 million small businesses in Canada, more than two-thirds of the owners are looking for an exit.
“Entrepreneurs are looking to sell their businesses and it's important that that transition happen as smoothly and as effectively as possible in a way that preserves the business and keeps that entrepreneurial capital in place,” explains Russell.
“If not, you will eventually get the owner that will simply wind up the business, take the capital out and probably re-invest the capital in non-risk assets and Canada loses in terms of the loss of the small business, it's employment opportunities, and the entrepreneurial capital disappears.”
From the IIAC’s perspective, loans, tax assistance to help potential buyers take over the business, or some manner of grant system would help younger generations continue to carry the torch.
It could even act as a clearing house.
“You have a lot of these older business owners that are looking to sell their businesses and you see a lot of entrepreneurs that are looking to buy, how do you match the two up and make people aware of buyers, make people aware of sellers, provide the facilities to assist in the transaction of these assets to enable them to transition to new owners and keep the businesses on the ground,” says Russell.