The Canadian financial system could lose the confidence of international capital markets unless it moves forward with plans to establish a single national securities regulator, according to Tom Hockin, executive director of the International Monetary Fund, representing Canada and the Caribbean.

Speaking at an Economic Club of Canada event in Toronto on Thursday, Hockin said several international organizations have identified Canada’s fragmented regulatory system as an area of weakness within its financial system.

“International organizations have taken notice of this situation, and are urging us to act,” Hockin said.

The IMF, for instance, has identified the lack of a single regulator in Canada as a potential problem that could hamper Canada’s ability to respond to a crisis, according to Hockin. The IMF has urged Canada to establish a single regulator that operates with an integrated focus on financial stability.

The financial crisis, and particularly the asset-backed commercial paper problems, highlighted Canada’s fragmented regulatory framework as an area of weakness, according to Hockin, since there was no single body that could effectively respond to the crisis.

In the IMF’s perspective, this reveals a “large glaring hole” in the Canadian financial sector, Hockin said. This could mean poor results for Canada in the IMF’s financial sector assessments in the years to come.

Unless Canada takes action, Hockin said it will face poor grades on these assessments of financial stability.

“It’ll mean that the international community will question Canada’s commitments to financial stability,” he said, adding that this could ultimately deter international investors from investing in Canada.

“When they see a big hole in how Canada is run, they back off,” he said.

The Organisation for Economic Co-operation and Development has also expressed concern with Canada’s regulatory system.

“The nation’s capital markets should be more efficiently regulated, notably by establishing a single securities regulator,” the OECD said in a report, quoted by Hockin.

IOSCO has also voiced concerns with the system of 13 securities commissions in Canada, Hockin said.

This type of international criticism is likely to become even more pointed in the aftermath of the financial crisis, he warned.

All countries are facing “a new era of international scrutiny,” Hockin said, and Canada must take steps to improve its image.

“Canada can do better, and we must do better. This is not just a matter of ending international embarrassment. It’s about being competitive, and about being seen to be competitive by international capital markets. It’s about being taken seriously as a place to invest.”

Hockin called on industry practitioners to speak out on this issue and to aggressively push for a national securities regulator.

IE