January is the month when one looks both forward and back. In this vein, I thought I would share my fearless forecast for regulatory developments in 2006. As you might expect, this forecast emerged from my crystal ball one December afternoon during the holiday celebrations.

The year 2006 will see a thought tsunami roll across Canada that will lay waste to the entrenched securities and financial services regulatory fiefdoms.

Rising out of the tsunami’s wake will be a single financial services agency that will operate throughout Canada. Its mandate will be to protect investors. Regulatory red tape will be slashed. No regulation will be permitted unless it passes the KISS (keep it simple, stupid) principle.

Canadians will be reborn with the skills that will give them a fighting chance to provide for their financial well-being through investing, and the death penalty will be reinstated for industry participants who lie to investors or mislead them.

British Columbia, Alberta and Quebec will reach out to the rest of Canada, seeking unity within and competitive advantage globally.

Canada will lose its reputation as the Wild West of securities regulation.

Is the forecast a dream, or could it become reality? If we had any sense, we would ensure it becomes reality, although perhaps we might stop short of reinstating the death penalty.

Looking back over 2005, the seeds for bringing about the forecasted changes certainly have been planted. For example, the Crawford task force has come up with a credible, functional model for a single regulator that could operate throughout Canada.

There is now civil liability for misrepresentations in written and verbal continuous disclosure material, which paves the way (when all provinces enact the necessary legislation) for moving to an integrated disclosure system such as the continuous market access model that B.C. has proposed.

This should contribute to simplifying regulations, as well as protecting investors.

Regulators have acknowledged investors’ concerns that their regulatory actions are falling short of actually protecting investors. However, despite the Ontario Securities Commission nominally addressing these concerns by establishing an investor advisory committee, there is little to show that investor protection is on the regulatory radar screen. Unlike the U.S. Securities and Exchange Commission, Canadian regulators do not see themselves as “the investor’s advocate,” which is how the SEC describes itself, or as “a relentless and powerful champion for investors,” which is how SEC chairman Christopher Cox recently described the SEC’s role.

Instead, Canadian regulators have succumbed to industry pressure and regulatory infighting to dilute fund governance proposals and to water down prospectus and other disclosure requirements for both the quality of the information given and in the obligation to deliver the information to investors. Regulators have succumbed to the “access equals delivery” myth, forgetting that a core purpose of disclosure is to close the gap between those who know and those who don’t. They have done little to increase the ability of investors to make better decisions, and they have not increased their oversight over investment funds despite the volley of fund failures that have resulted in investors losing hundreds of millions of dollars.

Regulators have also been oblivious to the egregious erosion of investors’ capital in investment funds by reason of the high fees that make these products patently unsuitable, and they have allowed complex structured products to be offered without any checks and balances. They have used exemptive relief to bypass prohibitions against self-dealing.

There is still no public record of brokers or advisors who have been subject to regulatory discipline and no effective way for wronged investors to seek redress. And the latest version of the rule book is 2,912 pages!

So, it looks as if my predictions — at least, on some fronts — will remain a dream for some time. IE