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Canada’s enlightened approach: Caveat Emptor (but educate the emptor)

Canada’s enlightened approach: Caveat Emptor (but educate the emptor)

While the rest of the world tries to regulate the risk out of financial services, and is in severe danger of strangling them, one country is resisting the herd instinct.  The Canadian Government, like all good investors, is running a contrarian strategy and runs the risk of remaining an outsider within the G22 by actually managing to achieve its goals.


The Canadians have adopted a caveat emptor( buyer beware} strategy with one particular difference.  They have decided that educating buyers to the issues surrounding purchases of financial products is a much better safeguard than micromanagment by overregulation.  Looking at their approach, its hard to argue against it as the most efficient solution with the best possibility of sucess.


Unlike the FSA and the EU Commission, the Canadian Government believes in equipping its citizens to cope with the ongoing series of financial decisions that will face them throughout their life.  Rather than putting the onus on Life and Pension providers and financial planners to decide what is in the best interest of the customer, they trust customers to act in their own best interests and are trying to give them the tools to do it.


To this end, the government set up a task force on financial literacy, which has now reported back with a series of recommendations to put into effect, which are trying to improve financial literacy; a concept the Task Force defines as “having the knowledge, skills and confidence to make responsible financial decisions”.


The Task Force have now reported back and outlined a national strategy consisting of five main priorities which will form the basis of a plan for the ongoing engagement with the Canadian public and the increasing of their financial literacy.  The emphasis is on starting early by introducing modules in school curricula and leveraging the Internet to provide lifelong opportunity for members of the public to maintain their awareness of the changing market.  Responsibility for this is being shared across government,  business, and voluntary organisations in order to make it a truly national project.


Comparing the two approaches, one can only wish that on this side of the Atlantic regulators had such an enlightened mindset.  The ongoing efforts of european bureaucrats to mandate outcomes in a risk market shows that they fundamentally do not understand the market they are supposed to be regulating.


As governements globally attempt to shift the risk of pension provision from the centre to the individual, the regulators try to ensure no-one loses out.  This is impossible in a risk-based industry such as financial services.  Maybe they should resist the urge to control the uncontrollable, and join the Canadians in equipping people to manage their own risks, rather than trying to manage them for them.  At least it’s a more logical position.  Who knows?  It might even work.


Tom Murray


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