A new report from the Canadian Centre for Policy Alternatives calls for a variety of reforms to Canada’s financial system to reduce systemic risk and instability.

Among other things, the report calls for the creation of a single, national securities regulator; giving the Office of the Superintendent of Financial Institutions authority to approve all financial instruments that are available to Canadian investors; and, requiring credit card companies to have their Canadian operations function as federally-regulated financial institutions.

On the subject of a single securities regulator, the paper notes that, “There will always be resistance from the provinces to such a scheme, but the present climate of economic strain gives the Finance Minister his best opportunity to revise the historic error of placing money and banking under federal jurisdiction and not also including the regulation of all financial institutions, markets, and instruments.”

It imagines that the authority to approve financial products could start with products manufactured by federally regulated institutions, and, once a single securities regulator is set up, it could be expanded to include all instruments. “This would be a way to require full transparency of financial instruments and a way to keep very risky and inappropriate instruments out of the hands of the general public,” it says.

Additionally, once a single regulator is in place, all financial firms could face capital rules similar to those for federally regulated banks and insurers. “The possibility of using a ‘systemic capital charge’ or a ‘countercyclical capital charge’ should be examined,” it says. “Such a new system of capital charges would need to be carefully examined by regulators, market participants, and legislators.”

The report also calls for closer oversight of credit rating agencies. “Credit rating agencies operate with clear conflicts of interest, as they are paid by the issuers of the securities being rated. These conflicts are at the core of the problems in both the U.S. and Canada,” it says.

“No set of regulations is ever a complete panacea for irrational panics, such as we have seen recently,” says the report’s co-author, Arthur Donner. “But careful regulation can give a country a more stable financial system with clear benefits to the nation.”

IE