A View From The Top | NEMA in conversation with Bill Rice
Chair, Alberta Securities Commission | Chair, Canadian Securities Administrators
1) Please tell us about your background prior to becoming chairman of both the Alberta Securities Commission and Canadian Securities Administrators?
I joined the Bennett Jones law firm in 1973 as an articling student, having obtained my law degree from Osgoode Hall Law School in Toronto. During my 32 year career with Bennett Jones, I practised in the Litigation department for four years and then became a securities specialist acting for issuers, underwriters and investors in both the public and exempt markets. I headed up the firm’s Edmonton office for two years in the early ‘80’s’ and served as the firm’s national managing partner for five years ending 2005. I was appointed Chair and CEO of the Alberta Securities Commission in July of 2005 and Chair of the Canadian Securities Administrators in January of 2011. I am currently in the second terms of each of those positions.
2) How do you feel about the maturation of the exempt market since adoption of NI 31-103? Has adoption of NI 31-103 met your expectations as to how the exempt market has transformed?
The capital market in Alberta has matured significantly over the past 40 years, as has the oil and gas industry that has been the principal consumer of capital invested. The exempt market is diverse, with major corporations raising large sums with the assistance of sophisticated investment bankers, smaller entities raising money from investors familiar with the reputations of the principals of the entities and new enterprises acquiring seed capital from retail investors not at all familiar with the capital market and relying on individual intermediaries. The business practices of many of those intermediaries had in many cases not matured along with the Alberta capital market generally and when NI 31-103 was introduced it was time for an elevation of business practices and standards. We are still in the early stages of implementation, but I perceive that expectations, business practices and service standards have improved. The jury is still out on whether the practices and standards will have improved enough.
3) Are there any particular areas of strength the exempt market has shown since the adoption of 31-103?
The most positive sign in the exempt market is evidence that the participant dealers see themselves as a group with a recognized self-interest in improving, and promoting the improvement of, their own standards. They have recognized the value of meeting and holding out a high standard and they have recognized the damage being done to their business and reputations by those who either do not meet or simply abuse those high standards.
4) Do you have any particular areas of concern with the new Exempt Market Dealer regime?
There are concerns. We are concerned about the quality of the services being provided, we are concerned about the lack of understanding of many dealers of the rules with which they must now comply, we are concerned with the number of poor and sometimes fraudulent investments in which retail investors are still placing their money and we are concerned about the amount of time and resources we as regulators must now devote to an area of the market that has historically been classified as exempt from the fundamental requirements of securities regulation.
5) What would you ideally like to see in regards to advisor training in the exempt market?
Disclosure in the public markets where prospectus and continuous disclosure obligations apply is very good. Nevertheless, retail investors need in most cases a great deal of help from competent advisors in reading and understanding that disclosure. Disclosure in the exempt market ranges from incomplete to non-existent. Valued advisers in the exempt market must, in the absence of disclosure, understand what information is relevant to the retail investor, know how to obtain that information and be able to pass their advice, based on that relevant information, to the retail investor within the appropriate context of the potential risk and rewards. I would like to believe that exempt dealers have the background and training necessary to do that job.
6) How do you balance your responsibilities with both your roles with the ASC and CSA? Do you ever find yourself in conflict within those two roles and if so how do you deal with it?
The fundamental goals of the ASC and the CSA are the same – to protect investors and the integrity of the capital markets. There is never disagreement on what we are trying to achieve, only disagreement on the point of appropriate balance and the means by which it is to be established. I am not reluctant to advocate strongly within the CSA for the position judged best by the ASC. However, as Chair of the CSA, I may be more conscious of the need for harmonization and therefore compromise and am inclined to try harder to understand and accommodate opposing views.
7) A regulator’s mandates of maintaining efficient capital markets for business and adequately protecting investors seem to be at odds with one another at times. How do you balance those two interests? Is there such thing as a perfect balance between the two?
For sure, the challenge of regulators is to find the right balance, acknowledging that circumstances in the relevant social, political and business environments will continuously shift the point of perfect balance. The most simple analogy is found in motor vehicle traffic laws. There is a stress between permitting efficient movement of people and maintaining the safety of that movement. The higher the speed limit the greater the risk, but we cannot tolerate a speed limit so low that the movement of motor vehicles becomes impractical. We try to give effect to rules that will protect investors without unduly impeding the raising of capital. What is difficult is determining from time to time what is “unduly”. There is a perfect balance, but it is constantly shifting and regulators only occasionally strike it.
8) How do you see the exempt market evolving in Canada in the coming years?
The exempt market will continue to be a very significant part of the capital markets in Canada. It is particularly attractive when stock market activity is judged not to be rewarding or not sufficiently rewarding to justify the costs of regulatory compliance for a public issuer. Ironically, as the exempt market grows under the appeal of a lesser regulatory burden, there will be greater pressure on regulators to increase that regulatory burden. It will be up to the participants in the exempt market to demonstrate that a lesser burden is justified. In other words, if participants do not apply the appropriate practices and standards themselves the securities regulators will be compelled to do so and the exempt market will becomes less and less “exempt”.
9) Where do you see the exempt market fitting in the overall bigger picture of Canada’s capital markets and helping Canada maintain a globally competitive economy?
There is no doubt that the exempt market has a huge place in the Canadian capital markets based on total amounts of capital raised and plays an important role in the creation and building of small businesses.
10) What role do you see an organization such as NEMA having in the formation of the exempt market?
If standards and practices in the exempt market are to be elevated and maintained in the absence of rules and oversight imposed by regulators, participants in the exempt market will need to find ways themselves to establish the standards and practices, train participants and impose necessary discipline. The creation of organizations comprised of exempt market participants that establish, teach and require compliance with the standards and practices offers hope for self-regulation.