Bold moves are few and far between. They take courage. They require clarity of vision and a fine sense of timing. They are an indicator of leadership.

The federal government’s decision to close the door on business income trusts was a bold move. The howls of pain came mainly from the financial services industry whose cash cow was being gored. For individual investors, it was a positive move — at least, over the long term. Many individuals never understood what they had bought, the capital they had at risk or the fragility of the “income” distributions. They never understood that if these structures were allowed to continue, the probable result would be a substantial increase in the income taxes they paid. They simply fixated on the quoted double-digit yield figures and assumed they were akin to a guaranteed rate of interest. In their search for income, investors were blind to the problems imbedded in these products.

But this column is not about income trusts. It is about bold moves and the need for more of them. Here are some bold moves whose time has come.

It would be nice to wake up one morning to headlines that the provincial premiers and the federal government have agreed to establish a single securities regulator that would operate throughout Canada and would be modelled on the prototype set out in the Crawford panel’s Blueprint for a Canadian Securities Commission, issued in June of this year. Virtually everyone agrees that this structure would work.

Even better, it would be nice to wake up to headlines that the provincial premiers have agreed to establish an integrated financial services agency that would operate throughout Canada and that would bring the regulation of securities, banking, insurance and pensions under its auspices. Saskatchewan and Quebec have successfully led the way in implementing such a regime. Ontario was well along the way to integrating financial services regulation.

Complementary to these bold moves would be the integration of the self-regulatory organizations into a single self-regulatory organization that would operate throughout Canada. It is absurd that the Mutual Fund Dealers Association is holding back from the discussions that are underway between the Investment Dealers Association of Canada and Regulation Services Inc.

It’s time to recognize the increasing “retailization” of the securities marketplace into an “instividual” one. This marketplace necessitates shaping the regulatory structure to address the integrated needs of the individual investor.

Governments and industry cannot be blind to what is going on south of the border, where their counterparts are gravely concerned that their complex regulatory structure and Byzantine laws are driving issuers and business offshore.

In a recent speech, Christopher Cox, chairman of the U.S. Securities and Exchange Commission, hailed the efforts of the National Association of Securities Dealers and the New York Stock Exchange to fold their member regulation functions into one self-regulatory body for all firms in the securities industry. Cox describes this move as one “that would increase the effectiveness of regulation for the benefit of investors by eliminating the needless and often harmful duplication that interferes with that investor protection mission.”

Mary Shapiro, chairwoman and CEO of the NASD, has gone one step further, stating that the NASD believes financial services products should have a harmonized approach, irrespective of whether the product is insurance, securities, banking or investment advisory.

She also says there should not be the kind of regulatory arbitrage that provides an incentive for the sale of one product over another. In her words: “A customer should be sold an insurance product rather than a security because the salesperson makes the reasoned judgment that the insurance product meets the best interest of the client, as opposed to the fact that such a sale might not be regulated by the NASD and subject to our myriad sales practice rules.”

If this sounds familiar, it’s because they echo similar recommendations I made in my 1998 report on the Canadian regulatory system.

Worldwide, there is concern about the volume and complexity of financial services laws. There is a race to a principles-based regime. Laws and rules are out; principles are in. Yet no one has articulated what these principles would be and no one has articulated how they would be enforced to ensure that the investor-protection mandate is carried out.

@page_break@Principles without an effective means of enforcing them would amount to an open season on investors. Let’s stop talking in generalities and jargon, and see what this principles-based regime would look like before we throw out the rule book.

Now, that would be a bold move indeed! IE