Structural Reform of Financial Regulation
Eric J. Pan
US Commodity Futures Trading Commission
January 1, 2009
Cardozo Legal Studies Research Paper No. 250
This paper was first prepared to assist the Expert Panel on Securities Regulation in Canada in making recommendations to the Canadian Minister of Finance and the provincial and territorial ministers concerning reform of Canada's securities regulatory system. This paper and the panel's recommendations were made public by the Ministry of Finance on January 12, 2009. While the paper focuses on Canada, the analysis it contains is directly relevant to regulatory reform efforts in the United States and other jurisdictions.
This paper breaks down the basic elements of an optimal financial regulatory system, identifying key regulatory objectives and systemic characteristics, relevant regulatory strategies, and optimal organizational approaches. The paper then compares the regulatory systems of Canada, the United Kingdom, Australia, the United States, France, Germany, Hong Kong, Japan, and The Netherlands to identify common themes and draw lessons for Canada's regulatory reform project.
The paper concludes with a series of proposals for Canada. Among its recommendations, the paper advocates the application of objectives-based regulation and consolidation of regulatory authority in the hands of the national government. The paper also discusses the importance of (i) coordination and information sharing among regulatory agencies - noting that the achievement of such coordination and information sharing is more important than the structural question of a single regulator versus twin peaks system - (ii) active participation by the national regulator in multilateral and bilateral negotiations with foreign regulators, and (iii) additional resources for enforcement and supervision. Regulatory reform along the lines recommended in this paper should improve the attractiveness of the Canadian markets in the eyes of global financial institutions as well as enhance the effectiveness of the regulatory system in ensuring the safety and soundness of its markets.
Number of Pages in PDF File: 66
Keywords: Financial Regulation, Financial Institutions, Regulatory Systems, prudential regulation, self-regulation, regulatory competition
Date posted: January 27, 2009 ; Last revised: December 8, 2009
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