The investment funds Institute of Canada was a major player in lobbying the federal government to eliminate the 30% foreign-property rule. Like many other organizations, IFIC wants investors to be able to participate beyond Canada’s borders — and the mere 3% of the world economy it represents — if doing so is sound and beneficial to their particular needs.

The ultimate demise of the FPR (and it will come) is the perfect opportunity for Canada to move up and sit at the adults’ table. That is important because, in the eyes of many, Canadians have a somewhat parochial reputation on the world stage, more likely to look inward than at what lies beyond their country’s boundaries.

This greater view of the world is essential to an industry that wants to expand and remain healthy. Many of our managers transact globally through dealers in the U.S. and Britain. Coincidentally, major international issues have arisen that can show that we are made of the right stuff and are capable of sitting among the larger powers.

To do this, we need to move in harmony with countries such as the U.S. and Britain. To do otherwise is to open ourselves up to inconsistencies and missed opportunities that will harm not only Canadian investors but the image the Canadian financial services industry wants to present to the rest of the world.

Let’s take the example of “soft dollars.” There already has been an exchange of views on soft dollars among groups in Canada (including IFIC and the Canadian Securities Administrators), the U.S.
(including the Securities and Exchange Commission, the National Association of Securities Dealers and the Investment Company Institute) and Britain (the Financial Services Authority).

Soft dollars

Each group is looking to the others for ideas, discussion and, ultimately, some guidance and agreement on forming securities legislation on tricky questions, such as whether the definition of soft dollars should be narrowed or expanded, whether soft dollars should be allowed to remain bundled and the level of investor disclosure.

There have already been some attempts by the U.S. to persuade the FSA about certain aspects of its proposed legislation. As it now stands, the proposed FSA rules, which are expected to go into effect Jan. 1, 2006, would introduce language more consistent with that used in the U.S. and would narrow the current definition of soft commission arrangements and bundled brokerage services.

More important, the British rules are expected to act as a yardstick for regulators in Canada, the U.S., Europe and Australia.

And that is why all countries must be on the same page on this subject. If one jurisdiction should not agree with the others, it would find itself very much at odds on a world scale. How can a broker in one country that agrees with some concept of soft dollars possibly expect to deal with a broker in another country that has decided to abolish the concept?

Impossible.

Without this kind of consistency, dealers and investment managers would have to work with more than one set of compliance regulations, resulting in a logistical nightmare. It is up to Canadian regulators, and our industry as well, to be cognizant that we can’t be drastically different from the other 97% of the world.

Now this doesn’t mean all countries need to agree on everything all the time. But major contradictions on major issues erect roadblocks, lead to increased costs and more cumbersome trades, and generally result in a system that is not very efficient.

Hardly a reputation worthy of one of the big guys. IE

Thomas Hockin is president and CEO of the Investment Funds Institute of Canada.