More on the regulatory burden: or, my back is broad but it’s a hurting

OSC taking action to reduce regulatory burden for Ontario market participants announces a recent news release

Here’s an extract :

  • “We are launching a wide-ranging consultation, with the support of our government, to identify new actions we can take to save time and money for Ontario businesses by eliminating rules and requirements that are outdated or unduly burdensome,” said Maureen Jensen, Chair and CEO of the OSC. “Our markets and businesses are better able to compete, innovate and flourish when we lighten the regulatory load, while maintaining strong protections for Ontario investors.”
  • Key areas of focus for the OSC’s consultation include but are not limited to: Operational changes, rules that may have become outdated or unnecessary, and opportunities to streamline and improve disclosure provided to investors, who ultimately bear the cost of unnecessary or outdated regulations.
  • The consultation follows the OSC’s November 2018 establishment of a Burden Reduction Task Force, which has a mandate to consider and act on suggestions to eliminate unnecessary rules and processes while protecting investors and the integrity of Ontario’s capital markets. This initiative also builds on the OSC’s efforts, since 2016, to reduce regulatory burden across the country through its ongoing work with the Canadian Securities Administrators on projects to reduce burden in public markets and in the investment fund space.

I’ve written before on some of those previous efforts (see here for instance). It’s fair to say by now that the CSA consults on reducing the regulatory burden much more often than it actually meaningfully ends up reducing it. This isn’t a new pattern. Those with long memories may remember a previous Regulatory Burden Task Force, founded in 1999 or thereabouts, which issued its final report in December 2003. As one commentator puts it:

  • …the overall reduction in the regulatory burden was marginal. A few branches were pruned but the great forest of regulation remained essentially untouched.

In fact, as I recall, the forest increased far more than it decreased during the life of the task force, due to a spate of corporate scandals (Enron, Worldcom), to the ensuing Sarbanes-Oxley package of US rulemaking, and to corresponding initiatives in Canada.

Personally, I dislike the phrase “regulatory burden,” carrying as it does a predisposed finding of excess weight. Such phrases are almost always ideologically loaded, as we see in various right-leaning governmental attacks on “job-killing regulations” and the like. Typically, these exercises are far better attuned to the short-term price of various regulations than to their possible long-term value (the ritual denouncing of carbon taxes, or increasingly of any environmental protections, is an obvious example). When applied to a field such as securities regulation, it’s extremely hard to ground such assessments in objective measurements of costs and benefits and to avoid subjectivity, or rampant inconsistency. To illustrate, numerous commentators on the CSA’s recent rulemaking initiative relating to non-GAAP measures jumped on an apparent disconnect, for instance:

  • It is also important that the CSA take a balanced and measured approach to ensure that the new framework does not result in an increased regulatory burden on issuers that is disproportionate to, or otherwise unnecessary to achieve, the objective of that framework. As part of this balance, the CSA should consider whether an alternative and more practical approach could achieve the CSA’s objective without the associated burden. We note that the Canadian securities regulators are currently focused on initiatives to reduce burdens on issuers involving disclosure obligations. This objective of streamlining and modernizing Canadian disclosure obligations should be respected in establishing a new regime for the disclosure of non-GAAP financial measures.

In issuing those proposals for comment, the CSA commented that the proposed rule “will provide CSA Staff with a stronger tool to take appropriate regulatory action as needed.” This seems true in that the proposals set up an extensive new line-up of defined requirements which, when not observed by issuers, provide a prima facie basis for enforcement action. There’s no question that there have been various calls for action on this front. But as I’ve written here several times before, there’s usually been some ambiguity about what people are actually asking for, or whether they entirely mean what they say. Certainly a fair number of the comment letters, while expressing token support for the initiative, seem less than enthused about what it’s specifically proposing.

Of course, there’s something to be said for the old cliché: if you’re being criticized from one side for doing too much and from another for doing too little, you might have it just about right. Among the many problems though is that those with an axe to grind are much likely to speak up than those who are just getting on with things. And then there’s the perpetual problem that the current burden reduction initiative, in common with the proposed non-GAAP rule, seems focused substantially on the tired old paper-based regime, with little or no consideration of new technologies and possibilities. For example, several commenters on the proposed rule commented on the pointlessness of including the necessary disclosures attaching to a particular non-GAAP measure within every separate document in which the measure appears, given the ease of inter-document hyperlinking and suchlike.

So what conclusion can we draw from this mishmash of observations? Well, one thing for sure, the oceans will continue to rise…

The opinions expressed are solely those of the author

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