In March 2007, the federal government proposed the creation of a national securities regulator. As is so often the case in Canada, the idea was studied, Constitutional challenges were launched, and the good idea died a long torturous death.
When it was announced, however, the prospect inspired then-editor of Advisor’s Edge, Philip Porado, to voice his thoughts on the proposal in an editorial in the magazine.
It now serves as an obituary for the national securities regulator.
(2007) – On the subway a few weeks ago, I picked up a discarded copy of the Toronto Star and was elated by a headline saying federal Finance Minister Jim Flaherty was looking seriously at the creation of a single, national securities regulator for Canada.
Then I made the mistake of reading the story. Yet again, a panel of experts will be convened. Provinces will be invited to participate. The idea will be researched in spite of some provincial opposition. The panel will deliver a report.
Blah. Blah. Blah.
I’m not the only one to react negatively to news of yet another blue-ribbon commission on this topic. In comments shortly after Flaherty’s announcement, International Monetary Fund managing director Rodrigo de Rato said Canadians deserved something better than the current provincial regulatory patchwork. Such finger wagging is usually reserved for countries with less-developed economies.
Now, I know the provinces value their independence. Heck, I come from a country where a bunch of states started a war over the idea they should be allowed to govern themselves without federal interference. But, provincial sovereignty notwithstanding, there are certain areas of public life and the economy over which someone needs to set a nationwide tone for guidance, and when necessary, discipline. The securities industry is one of those areas, and I see it as the federal government’s job to set that tone, and then pass the necessary laws to put tone into practice, from sea to sea to sea.
Canada needs its own version of a Securities Exchange Commission that doesn’t defer its authority over bad actors to either the provinces or self regulatory organizations. It needs a strong commission, based in Ottawa, alongside the regulators of banking and commerce. It’s not an agency whose creation or housing should be horse-traded in an effort to kowtow to pressure groups. It must conduct business seamlessly in French and English and have authority over SROs for practitioners at all levels of the securities market, including insurance products that have their roots in equity portfolios. It must have nationwide authority to mandate disclosure requirements and set bright-line standards for both suitability and the Know Your Client processes.
Failing that, Ontario could at least sign onto the Passport model that allows registration in one province to be recognized by all—a bit of progress toward harmonization at the working level would be a positive step.
I spent years covering the securities industry in the States, and it’s given me appreciation for how advisors, and their clients, benefit from knowing there’s more than one cop on the beat, and that one officer in particular wields a very big stick. The various regulatory bodies are able to play off one another and share the duties of examining firms. State securities regulators keep an eye on branch offices and enforce fraud statutes, while the SROs and the SEC keep watch over head office, and oversee customer complaints, arbitrations, and address larger systemic and judicial issues. The state of New York might have been the first to turn back the covers on the 2003 mutual fund scandals, but it took the cross-jurisdictional authority of the SEC to piece the puzzle together and take all players to task.
Canadian advisors and investors will not experience these benefits until their leaders break with the tendency to overanalyze issues and start turning talk into action.