January 30, 2009

A national securities commission:

A costly proposition for taxpayers and corporations alike

Yvan Allaire and Michel Nadeau | IGOPP

Finance Minister Jim Flaherty’s obsession with creating a national securities commission is becoming clearer. On Tuesday evening, he revealed the cost of the new federal infrastructure project he wishes to roll out, which comes to $154 million for 2009-2010 alone (as indicated on page 102 of the budget speech).

We understand Mr. Flaherty’s commitment to spending in order to boost the Canadian economy, but this $154 million to create a national commission seriously undermines the argument that a single regulatory agency would be more cost-effective than the current structure.

This expenditure would be a mere drop in the bucket, however, if it became necessary for all of the organizations regulated by such a national, federal body to ensure that Canadian investors had access to financial information in both official languages.

Indeed the Hockin Report proposes that any publicly traded company could opt to be regulated by the federal, or national, securities commission rather than by the securities commission of the province where the company keeps its legal residence. Does that mean that this federal or national commission would have to require all publicly traded companies to communicate with their investors in both official languages?

Indeed, would a francophone investor, regardless of where he or she lives in Canada, be entitled to receive a French version of annual reports and all other financial communications published by a publicly traded, federally regulated, company?    Canadian consumers are informed of the contents of their cereal box in either official language wherever in Canada they’re having breakfast. So why would it be any different when it comes to a national organization that is supposed to ensure Canadian investors are adequately informed about their investments?

Let’s look at a concrete example. In the spring of 2008, Visa Inc. became a publicly listed company in Canada. To avoid the financial costs and delays involved in translating its (503-page) prospectus and related documents, Visa decided not to distribute and sell its shares to Quebec investors.

How would that be possible if Visa had been regulated by a national, or federal, commission? How could a federal agency endorse such a scenario, depriving francophone investors outside of Quebec as well as in Quebec from information in French?

This is not a minor issue. The cost to produce legally binding translations of all documents is enormous. At this time, even among the 253 largest listed companies in Canada, the companies making up the TSE-S&P Index, only 81 (37%) publish their annual report in French and in English. Only 60% actually provide a French version of the all-important Management Information Circular, the document that provides information on executive compensation, proposes board members for election as well as any special resolution to be voted on by the general assembly of shareholders.

For the thousands of smaller companies listed on Canadian exchanges, the problem would be even more formidable. Proponents of a national, federal, securities commission better answer those questions before proceeding too hastily with their plan. Were a national securities commission to require that all communications of publicly traded companies with their investors be available in both official languages, the cost would be astronomical.

If a national, federal commission were required to insist that all documents sent to investors be made available in both official languages, the cost would be astronomical. Keeping the current system in place, which would suit everyone outside of Toronto and Ottawa, would save $154 million of taxpayers’ money and tens of millions of dollars in translation fees for Canadian businesses, which have much more pressing priorities to deal with right now.