Finance minister promises progress on national regulator

(June 21, 2005) Advisors and their clients can expect a lower-cost and simpler world if the financial services sector unfolds as envisioned by federal Finance Minister Ralph Goodale.

Meanwhile advisors confronted by clients worried about their defined benefits pension plans will have to wait longer for any specific solutions.

Goodale linked the establishment of a national securities regulator to increased productivity in the financial services sector since it would boost the free flow of capital. “We believe the current structure with a costly network of multiple provincial and territorial regulators is simply outmoded in this day and age in an era of global capital. Small and fragmented provincial capital markets simply won’t do,” he said during a presentation Tuesday morning at the Economic Club of Toronto.

During a press conference following the presentation, Goodale termed the current system wasteful and inefficient. “It’s another example of where we have at the present time a real inefficiency ingrained in our system. We have 13 regulators rather than one.”

Goodale also referred to the now-standard financial services truism that Canada and Bosnia-Herzegovina are the only countries in the 103-member International Organization of Securities Commissions lacking a national securities regulator. “Recent evidence would seem to indicate that they’ve moved ahead and we haven’t. It’s an inefficient way to deal with capital markets,” he said while not providing specific timelines for implementation of his regulatory plans.

Goodale’s endorsement of a national securities regulator could eventually save money and simplify matters for financial institutions manufacturing wealth management products and advisors alike, suggested Paul Derksen, executive vice president and chief financial officer of Sun Life Financial, who spoke to Advisor.ca after Goodale’s presentation.

“It would create a lot more simplicity in the system as opposed to having to deal with a multitude of provinces,” he said. “It creates a significant amount of simplicity for them and that will make the cost of issuing securities less than would (it) be currently.”

On the international front, Canada’s future depends on recognizing the need to increase productivity in order to meet competitive threats from the emergence of China and India as global trade powers, Goodale said. On the domestic front, the aging population and decreasing growth in labour force make growing Canadian productivity a critical priority, he said.

Under Goodale’s scenario, the urgency of increasing productivity has implications for all sectors including financial services. To free up capital, the Liberal government will move ahead with plans first announced in the budget to improve capital cost allowance tax breaks, raise RRSP limits to $22,000 by 2010 and increase the personal tax exemption amount to $10,000 (from the current $8,102).

Other tax plans announced in the budget such as eliminating the corporate surtax in 2008 and reducing the general income tax rate to 19% from 21% by 2010 will also be implemented. These changes would take place “… on a different legislative format and different parliamentary track,” he said, apparently referring to the Liberal government’s minority status.

Goodale was much less forthcoming about the current concerns of advisors and clients over possible shortfalls in defined benefits pension plans except to state that financial officials have begun consultations. “This is a huge long-term challenge. Demographics play into this because it’s going to get a bigger and bigger challenge as baby boomers retire in big numbers around the year 2010,” he added, but provided no additional details about government plans.

Al Emid is a Toronto-based freelance writer

(06/21/05)