No one would wish the fallout from the financial crisis was worse, except maybe consumer advocates. By narrowly avoiding calamity, Canadian policy-makers can just tinker around the margins and avoid a genuine effort to address the fundamental consumer-protection issues that were exposed in the crisis.

For years, various consumer advocates have been agitating for greater regulatory attention to investor-protection issues in the financial services sector — more useful disclosure, dismantling conflicts of interest, greater industry proficiency, a more powerful deterrent to offside behaviour through enforcement and better access to redress, to name a few items on the wish list.

The only way to get policy-makers’ attention on these issues, some consumer advocates had feared, would be a massively expensive, disruptive crisis. Now, that crisis has happened, and weaknesses in the financial services industry’s consumer protection are being singled out as one of the primary causes of the crisis by policy-makers around the world.

“The economic crisis was driven by an across-the-board failure to protect consumers,” observed Chris Dodd, chairman of the U.S. Senate banking committee, when introducing his proposed package of reforms in mid-March. “When no one office has consumer protections as its top priority, consumer protections don’t get the attention they need. The result has been unfair and deceptive practices being allowed to spread unchallenged, nearly bringing down the entire financial system.”

Dodd is proposing to create a new consumer-protection body to oversee financial services firms and the products they create, among a series of sweeping industry reforms. U.S. proposals also contemplate imposing a fiduciary duty on anyone giving financial advice.

In Britain, the Financial Services Authority is promising to adopt a new approach to conducting regulation, designed to prevent harm to consumers rather than simply reacting to it after the damage is done.

“A regulator must be willing to place itself between consumers and harm,” said FSA CEO Hector Sants in a speech delivered in mid-March. “We will only achieve this by taking a proactive stance. We will now seek to proactively intervene earlier in the product chain to anticipate consumer detriment and choke it off before it occurs.”

In Canada, there are signs of a newfound interest in consumer-protection issues as well.

“We believe Canadian authorities have taken as a key lesson learned in the financial crisis the need for proactive consumer protection,” says a Moody’s Investors Service Inc. report analyzing the latest federal budget, which included a series of moves designed to beef up consumer protection in the banking sector.

These moves include prohibition of negative option billing; standardizing the calculation and disclosure of mortgage prepayment penalties; requiring banks to participate in an approved, independent dispute-handling body; expanding the mandate of the federal Financial Consumer Agency of Canada; and that the FCAC will seek the authority to regulate the market conduct of the credit and debit card networks and their participants.

On the securities side, the recent announcement by the Ontario Securities Commission that it intends to create a new investor advisory committee — and the fact that this appears to be a more dedicated effort than the OSC’s first stab at an investor panel by including salaries for panel members, a research budget and administrative support — indicates that securities regulators may finally be ready to take retail investors’ issues more seriously.

Notwithstanding these encouraging signs, policy-makers in Canada have yet to address the sort of fundamental consumer protection issues that are being targeted by reforms in the U.S. and Britain. Yet, many of the same underlying conditions that caused the global financial crisis are also evident in our domestic industry. Inadequate disclosure, distorting incentive structures and scant consumer knowledge mean that products of dubious value, or those with questionable economics, continue to be manufactured and sold.

Despite the critics, suspect financial products always seem to find an audience, which is either a testament to marketing genius or a sign of regulatory failure — and probably both.

Glorianne Stromberg, a retired securities lawyer in Toronto, former commissioner at the OSC and author of two influential reports on the investment funds industry, suggests that if regulators want to get really serious about improving consumer protection, they need to be doing a lot more than they have so far, including: requiring truly meaningful, up-front product disclosure; reviewing financial products to assess whether they can deliver what they promise; prohibiting self-dealing; hiring better trained regulatory staff and demanding better trained advi-sors; and imposing fiduciary obligations on advisors, among other things.