Canadian regulation needs fixing: Oliver

Less than six months away from retirement, Joe Oliver is in a mood to speak a little more candidly about the investment industry he oversees, noting that Canada’s regulatory structure isn’t broken — it just needs fixing.

“I have repeatedly said that a viable alternative to a national securities commission is a fully integrated model,” he told attendees at the Canadian Institute’s Securities Superconference in Toronto on Friday. “I have reluctantly come to the conclusion that such a happy event is unlikely to occur before global warming turns Iqaluit into a tropical paradise.”

Oliver made special note of Alberta Finance Minister Lyle Oberg’s comments earlier in the month in support of a single body in charge of enforcement as a nod to a national securities commission. But while momentum appears to be growing for a pan-Canadian commission, Oliver says he has witnessed numerous false starts before.

He hopes this isn’t the case this time around. “Well-regulated, competitive markets or their absence matter,” Oliver says. The Task Force to Modernize Securities Legislation notes the cost of raising capital in Canada is about 25 basis points higher than in the U.S., he adds. This, according to the Bank of Canada, would translate into approximately 0.5% decrease in our gross domestic product.

“The task force ascribes this discount for our fragmented securities regulatory system and less effective enforcement countrywide,” he says.

On a positive note, Oliver will get to see the self-regulatory structure in Canada become a little less fragmented. Last year the IDA and Market Regulation Service (RS) agreed to merge. While a final merger proposal has not been reached, it’s likely the deal will be complete by the middle of the year.

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The new self-regulatory organization “will regulate the financial condition, business conduct, and equity and fixed-income trading of the securities industry.”

Unlike the mergers taking place in the U.S. between the NYSE and the NASD, the IDA/RS merger is not about delivering cost savings back to the industry. While the mergers down south will eliminate duplicate member regulation, Canada’s issue has less to do with duplication and more with fragmentation. The impetus for the IDA/RS merger, he explains, was to address the conflict that exists when a for-profit stock exchange regulates a marketplace that it owns.

The new body will likely consist of 13 members, including the CEO, with an equal number of industry and independent directors, who will be representative of the industry in terms of ownership, head office location, business model and size.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(02/26/07)