Regulatory cooperation that overlaps borders.

• Author: Kranc, Joel
• Position: GLOBAL GLANCE

It has been called the world's longest undefended border and yet Canada and the United States are once again making efforts to combat a certain type of aggressor. Though the threats do not come from armies or terrorists, there is an effort afoot to guard against securities fraud and market malfeasance that has plagued both countries in the recent past.

Earlier this spring, the U.S. Securities and Exchange Commission (SEC) announced that it, along with the Ontario Securities Commission (OSC), would begin a process to " ... discuss ways to further strengthen cooperation regarding their supervision of financial firms ..." In addition, the two agencies discussed their respective approaches to examinations, investor education initiatives and the status of regulatory reforms in each jurisdiction.

The SEC and OSC staffs also discussed "additional coordination in the oversight of dually regulated entities," and they agreed "to meet regularly to discuss issues of mutual significance regarding supervisory coordination and emerging risks in the cross-border market."

The timing of the announcement and the discussions leading up to it represent something of a shift in thinking about the ways in which cross-border securities monitoring occurs. In the pre-financial crisis era prior to 2008, the SEC worked with counterparts in other countries and jurisdictions--in this case the OSC--mostly on a case-by-case basis. If law was broken, cross-border investigations took place; but the two regulators only dealt with each issue as it arose.

In fact, the SEC and OSC have had Memorandums of Understanding (MoU) long before the financial crisis hit.

"A number of years ago the SEC and its counterparts developed protocols for cooperation in enforcement matters," says Ethiopis Tafara, director of the SEC's Office of International Affairs.

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"Starting in the early 1990s we realized that with national boundaries and global markets the only way you survive as a regulator is through collaboration and cooperation with your counterparts around the world," he says.

As a result, the SEC and counterparts developed and entered into MoUs and other cooperation arrangements that have resulted in more than 40 bilateral relationships with other regulators.

Cooperation under these arrangements is triggered by a potential violation of the law, notes Tafara, but "it also makes sense to cooperate long before the law is broken and to assist one another in the...