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Canada’s securities regulation reform is kicked to touch

Canada’s securities regulation reform is kicked to touch

The reports of yesterday’s meeting of the provincial finance ministers, under the chairmanship of the Federal Finance Minister Jim Flaherty , were predictably focused on the never-ending discussion about expanding the Canadian Pension Plan. However, a more important issue is being ignored by this relentless focus on pensions; the need for a single regulator for the securities sector throughout Canada. On this, the meeting failed to act decisively.

In many areas of life, globalisation has moved sovereignty to supra-national bodies in order to provide more effective regulation of businesses that span multiple national sovereign states and therefore are in a position to evade their responsibilities by effectively engaging in regulatory arbitrage.

The danger of permitting regulatory arbitrage is far greater in Canada, where the provincial nature of the country means that it is easy to evade one regulator by shifting to the jurisdiction of another. In all OECD countries, governments are wrestling with the problem that financial crimes are particularly difficult for consumers to protect themselves against, as the products are complex and not easily understood. How much more difficult is it for the consumer when there are thirteen sets of regulations operating in a single country?

Of course, operating under a single regulator would mean that the rules would have to be harmonised across all the provinces but one has to ask why they are different. Is it because there are genuinely thirteen different ways to protect the public? Or is it because when a provincial regulator exists, it has to differ from the others in order to justify its own existence? In fairness, how long would the highly remunerated and pensionable jobs as regulatory officers last if all they did was announce that they were going to have identical regulations to the province next door?

Yesterday’s meeting of the financial ministers at Meech Lake decided to look at two models – the single national regulator and a ‘passport’ system with harmonised but separate security regulations. It’s hard to see any reason for the “passport” approach; if the regulations are harmonised to give equal protection to citizens across Canada then the thirteen different regulators appear to be just replicating each other’s work. This creates the kind of bureaucracy that stifles innovation and wastes tax dollars.

Provincial independence is a very important part of the makeup of the Canadian state but there are some things that are best carried out on a national level. Security provision is one of the prime duties of government and it is not just physical security that is essential to the citizen – financial security is also key to their lives. As other blocs of nations, notably the European Union, gradually increase their supra-national control of financial services in order to protect their citizens from blatant abuses by multi-national financial conglomerates, the provinces appear to be out of step by putting their own jurisdictional rights ahead of the needs of their consumers.

The Meech Lake agreement to examine the “passport” option is a parody of itself; it shows the result that happens when thirteen different groups try to come up with a single plan. This same type of compromise will also occur endlessly with regulations, if this option is adopted and will result in regulations being reduced to the lowest common denominator to get agreement. Securities regulation needs action, not compromise, and the provinces need to start putting the needs of the consumer ahead of their touchiness about their areas of jurisdiction.

Tom Murray

Twitter: @TomMurrayDublin or @Exaxe

Google Plus: TomMurray

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