Thank you for the opportunity to have input into this important dialogue. We are pleased to respond to the questions posed and would be prepared to elaborate when the opportunity presents itself.
Enbridge's responses to the questions include the following thoughts.
1. Key strengths and weaknesses of the current structure
The key strengths of the current Canadian securities regulatory system include a concentration of expertise and related regulatory activities in areas of Canada where there are corresponding concentrations of Canadian business and financial services. It is a strength that the resources on the regulatory side are available where businesses need them. Another strength of the system is the high degree of collaboration and coordination which exists amongst the various provincial and territorial securities regulators. Although each of these regulatory agencies is responsible to its own provincial or territorial government, they function with a high degree of collaboration on the development and implementation of a consistent regulatory approach. Weaknesses in the current structure include a certain degree of fragmentation that exists because the province of Quebec does not have a regulation style which matches as closely, the other provincial and territorial regulators.
2. Enforcement activities related to capital markets
It is difficult to answer this question from the perspective of a regulated corporation other than to speak with respect to our own affairs. The Enbridge group of corporations complies with the law in all continuous and timely disclosure filings and other market activities, and has a strong commitment to ensuring that the statement of business conduct of the Corporation is adhered to by all employees and our external advisors and independent contractors. It is difficult to comment and measure the effectiveness of enforcement activities carried out in Canada other than to comment that it appears that corporate Canada cooperates with the extensive and demanding rules applicable to Canadian market participants concerning disclosure, financing and securities related transactions. The spectacular capital market failures which have occurred in the United States have not appeared on the Canadian landscape. It is similarly difficult to gauge whether the current structure in Canada enhances or diminishes the effectiveness of enforcement.
3. Canada's regulatory structure effect on international competitiveness
Canada's regulatory structure may appear to be intimidating because of the number of regulators involved for national financings. Canada's regulatory structure appears to be as rigorous a system and as good a system as in any other capital market in the world, so that Canadian capital markets and the economy have performed well against peers and competitors. Canadian capital markets appear to have attracted a significant amount of foreign investment and the ongoing disclosure standards and the policing of the stock exchanges and corporate reporting provide a general sense of confidence in the quality of our Canadian capital markets. As evidence of the confidence which others have in Canadian markets, we can look to the United States and point to the continued existence of the multi-jurisdictional disclosure system, a series of policies entered mutually between Canadian and American securities regulators enabling the market participants in one country to access capital in the markets of the other. Such a mutual system would not exist if a strong degree of confidence amongst the regulating officials did not exist.
4. Costs of complying with securities regulation
The current regulatory structure has its own costs for compliance and it is difficult to compare this structure against another when there is no benchmark. For example, if there were a national securities commission, would such a commission take the place of the provincial regulators so that only one fee and set of filings would be required? Would a national securities regulator be a new addition to the currently existing provincial regulators so that new costs and a new number of filings would be required? Canadian Securities Administrators have worked well to focus on the efficiency which Canadian issuers have in their access to capital markets in Canada, achieving a high degree of coordination and cost control. It would be unfair to criticize these efforts without a clear model to compare the current structure against. Over the years, it can be said that differences between the provinces and territories on specific topics has resulted in extra effort, increased costs and filing fees. Obviously, Canadian issuers would prefer an even simpler and more streamlined system than the current structure. Great success has been achieved with the implementation of SEDAR, and the variety of coordinated national policies and national instruments which members of the Canadian Securities Administrators have achieved. Our perception of trends concerning the level and costs of regulation would be an observation that things appear to be improving. The use of electronic filings, electronic payment and the amount of collaboration and coordination among CSA members demonstrate that these regulatory agencies are pursuing operational efficiency.
5. Unique regional and local characteristics of capital markets across Canada
The Enbridge group of corporations has had positive experiences in issuing securities on a national basis, so that we can say we have not been truly adversely affected by unique regional and local characteristics of the capital markets. Enbridge entities with publicly traded equity are currently listed on the Toronto Stock Exchange. Our access to capital debt markets is likely impacted by regional and local characteristics of capital markets which are unique as the debt markets are more significantly concentrated in a small number of major Canadian financial capitals.
We are aware that small and medium sized growth companies are vocal in expressing their desire to avoid the complexity and costs of becoming public companies. The current regulatory structure makes some concession to small businesses. We understand that smaller businesses lack the infrastructure and often expertise to deal with the compliance burden so that reliance on external services is required and is costly.
6. Timeliness, responsiveness and flexibility of the current system
In terms of timeliness, responsiveness and flexibility, the current system rates well although there is room for improvement. Collaborative and cooperative work amongst Canadian securities regulators is a significant achievement although it is not necessarily as speedy as it could be. The current system responds well to crisis type issues and is slower in developing policies in response to larger structural issues. In all circumstances, the regulators need to strike a balance when considering revisions to simplify or strengthen policies, rules and regulations. The balance must protect the public interest and respect the marketplace participant's need for efficiency. Often these two goals appear to be at odds and the balance struck tends to be towards a willingness to err on the side of over-regulating and perhaps requiring over-disclosure. This propensity is not unique to Canada and is perhaps even more extreme in the United States. However, the desire for operational efficiency must not result in a compromise of the appropriate dedication to justice and integrity, and the public perceptions thereof.
7. Assessment of regulatory structures in other countries
The experience at Enbridge with other countries consists largely of the capital markets in the United States and American regulators. The American systems tend to be very similar to those in Canada in concept. In practice, because of the volume and variety of activity, regulators appear to be caught in a race to provide certainty by providing an ever-increasing number of rules. Corporations appreciate certainty for planning purposes although this certainty itself becomes an obstacle when it is complex disclosure that results. As with any growing plant organism, the rules and policies generated by regulators may in fact benefit from a pruning and a trip back to fundamentals, from time to time. Capital markets are dynamic places and regulators do a good job in following the innovations created.
Certain European countries such as Germany and the United Kingdom have securities regulators that take a more academic approach in the framework of the development of corporate governance or other aspects of market regulation and likely experience certain benefits from this. For example, their systems may have somewhat more clarity and logical consistency. On the other hand, such thought framework may create a rigid approach and hamper the regulatory response to developments in the market.
8. Best securities regulatory system for Canada
An evolution of the current securities regulatory system towards greater operational efficiency and greater national uniformity, while maintaining Canadian standards for quality disclosure, credible enforcement and efficient capital markets is desirable. The current Canadian Securities Administrators have done an admirable job as civil servants to create collaboration and coordination in the securities regulatory area. The involvement of provincial and territorial governments more formally, and including the federal government would no doubt be desirable from a political point of view. The general structure of securities law in Canada, the United States and elsewhere has been to recognize the expertise of outlining the powers of an administrative agency and self-regulatory bodies, setting standards, and empowering them to play the expert role of regulating the markets. The best model for Canada in the future will likely recognize these realities and continue to subject market activity to the rule of law through expert administrative agencies and self-regulatory organizations accountable through legislation. Logical evolution of the current Canadian Securities Administrators may be the creation of a single securities regulatory agency.
Please note that the Enbridge contact person is Mr. Blaine Melnyk, Corporate Secretary. He can be reached at (403) 231-3938 or by e-mail at firstname.lastname@example.org.