Canada’s regulators have taken a more international view since the global financial crisis in 2007-09. Yet, the compliance officers (COs) and financial services company executives surveyed for this year’s Regulators’ Report Card aren’t too keen on their provincial securities commissions and self-regulatory organizations focusing so much on policy decisions made outside of Canada’s borders.
In fact, survey participants rated three of the five regulators in the Report Card lower by half a point or more in “the regulator’s effectiveness in keeping up its policies with evolving international regulatory developments” category. And although the ratings in “the regulator’s effectiveness in balancing evolving international regulatory developments with the regulatory needs of the Canadian marketplace” category held steady, they were already low to begin with. The exception to this trend was the B.C. Securities Commission (BCSC), for which ratings rose by half a point or more in both categories.
Still, many survey participants questioned whether it’s worthwhile for Canada’s regulators to focus so much on developments beyond our country’s borders – especially given the resilience of Canada’s financial services sector.
“Look at the financial crisis,” says a company executive with an Ontario-based investment dealer. “Everyone else [in the world] screwed up, so why should we want to keep up with them?”
Nevertheless, the global financial crisis changed the game for regulators – even in a relatively unscathed country such as Canada, says Jean-Paul Bureaud, director of the Office of Domestic and International Affairs at the Ontario Securities Commission (OSC). That’s because governments now are driving reform; as well, global organizations to which Canada belongs, such as the Financial Stability Board, have become bolder in their actions. Says Bureaud: “There’s been a bit of a sea change in many ways resulting from the financial crisis.”
Regulators keep up with what’s happening around the world mainly through formalized relationships with counterparts in other jurisdictions and with organizations such as the International Organization of Securities Commissions (IOSCO).
For example, the BCSC, the OSC and the Alberta Securities Commission (ASC) all have memoranda of understanding with regulators such as the Securities and Exchange Commission in the U.S. and the Financial Conduct Authority (FCA) in the U.K., which allow regulators to share information on policy projects, among other things. The ASC and OSC also participate on IOSCO committees and the Council of Securities Regulators of the Americas.
These relationships give Canada’s regulators insight into the major regulatory developments that have taken place elsewhere in recent years. Most notable are the FCA’s Retail Distribution Review (RDR) and the Australian Securities and Investments Commission’s Future of Financial Advice (FoFA) reforms that came into effect on Dec. 31, 2012, and July 1, 2013, respectively.
Both the RDR and FoFA banned embedded commissions for financial advisors; FoFA introduced a standard requiring advisors to act in the best interests of their clients. These reforms, in particular, have many financial services companies’ COs and executives in Canada worried about what they perceive as a “follow the leader” mentality among Canada’s regulators.
“Just because the U.K. has implemented something doesn’t mean we should, too,” says a CO with an Alberta-based exempt-market dealer. “Those policies have been in place long enough [for our regulators] to see how ineffective they have been at achieving their goals.”
Indeed, Canada’s regulators have kept tabs on the progress of new regulatory regimes. The OSC, for example, has been in contact with its counterparts in the U.K. and Australia to learn about their experiences. Says Bureaud: “They gave us some insight that [the reforms were], in fact, not quite having the effect they thought [the reforms] would have.”
Still, survey participants were concerned that Canada’s regulators are focused on following others rather than looking for homemade solutions.
“Canadian regulators, as a whole, have a ‘monkey see, monkey do’ approach to regulation,” says a CO with an Ontario-based investment dealer.
Adds a CO with a mutual fund dealer based in Ontario: “[The Mutual Fund Dealers Association of Canada (MFDA) is] trying to keep up, but [Canada has] stronger regulations anyway. So, are [the MFDA] doing it because it’s necessary or just because they want to follow along?”
Although the MFDA monitors international regulatory changes, all of its proposed guidance or rules originate from the issues faced in Canada, says Karen McGuinness, senior vice president, member regulation, compliance, with the MFDA: “MFDA policy development stems from specific issues we’ve identified in either compliance or enforcement, not necessarily based on an idea [another country] has.”
Still, monitoring the international regulatory environment ensures Canadian regulators aren’t missing anything – including potentially useful information or solutions, says Sandy Jakab, director of capital markets regulation for the BCSC.
However, she adds, there still are many areas domestically that demand a “made in Canada” approach: “There’s no other venture market in the world like the Canadian venture market, so there’s nowhere else to look.”
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