IFIC calls for regulatory action in upcoming budget

(February 7, 2005) IFIC is urging Ottawa to encourage increased cooperation among Canada’s securities regulators, as the federal government prepares to bring down its budget on February 23.

The ultimate goal should be the creation of a harmonized regulatory structure, IFIC said in its pre-budget submission, released today.

“Building a national approach to regulation will be beneficial for investors and the mutual fund industry alike,” said IFIC president Tom Hockin. A harmonized regulatory structure would reduce the current confusion prevalent within the current fragmented situation, in which different regulators have competing rules and philosophies.

The issue of the creation of some kind of national securities regulator has fallen off the radar of late, with Finance Minister Ralph Goodale showing little appetite to tackle the controversial concept, especially in a minority government situation.

It’s been more than a year since the Wise Persons’ Committee, with a mandate to review the structure of securities regulation in Canada, endorsed the national regulator concept, but there’s been little substantial movement since then.

Several of the provinces did endorse the “passport” system, which would allow companies to register to sell securities in one province or territory, with all other participating provinces and territories recognizing their credentials. Still, Ontario is a notable holdout, and Goodale has said he doesn’t think the passport approach goes far enough.

“I find there’s a bit of paralysis here,” Hockin added in an interview. “We just want to give things a bit of a nudge. Maybe at some point we’ll get to a single regulator, but in the meantime we’ve got to have harmonization.”

And not everyone has given up on the idea of a national regulator. In a speech last week, Richard Knowles, president of The Investment Counsel Association of Canada, encouraged Canadians to continue “to fight to bring Canada’s securities regulatory structure into the 21st century by urging elected officials to take concrete action to create a single national securities regulator.”

“A single national securities regulator would be good for all Canadians for three reasons: cost, investor protection, and national prosperity,” Knowles added.

Knowles says the association, which represents investment counsel and portfolio management firms across Canada, does not want the issue to lose momentum. “All the major players in the Canadian financial markets have spoken out on the need for a single regulator, and there is consensus on the need for change. We must continue to voice our concerns so that legislators understand that this is a vital issue in need of resolution. We urge Canada’s federal government to take action.”

IFIC’s pre-budget submission also includes a suggestion that Ottawa immediately increase annual RRSP contribution limits to $27,000. “This could be accomplished by redefining the contribution limit from 18% of $75,000 of earned income to 36% of $75,000 of earned income.”

But tax experts believe that Ottawa is unlikely to act on RRSP limits this year, because the 2003 federal budget already introduced a phased-in increase, topping out at $18,000 in 2006.

“What the government forgets is that by encouraging higher limits, they’re not indulging wealthy people — we’re talking about auto-workers, labourers, teachers and so on. And there’s now close to $400 billion in RRSPs. Those are all going to be taxed when they’re move to a RRIF — so there’s this huge tax bonanza of revenue coming to the federal government.”

IFIC is also encouraging Ottawa to adopt pre-paid tax-savings plans, which the mutual fund industry association says are an effective way for lower-income Canadians to save for retirement.

Sometimes it makes sense not to have an RRSP at certain income levels,” says Hockin. “I think this has some legs with finance officials and I think the opposition parties would support it, so I don’t know why they wouldn’t try it.”

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Ottawa may also have to reform the RRIF program, Hockin adds, given that Canadians are living longer, and that could mean some Canadians may outlive their retirement savings. Currently, Canadians must convert their RRSP into an annutiy or a RRIF in the year they turn 69. “Maybe they should consider pausing it to 72 or something like that, because people don’t automatically retire at 65 anymore,” said Hockin.

Hockin also repeated his call to increase contribution limits for RESPs beyond the current lifetime limit of $42,000 and annual limit of $4,000. These limits have been fixed for many years and are not indexed for inflation, nor have they taken into account the skyrocketing costs of education, he noted.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(02/07/05)

Doug Watt