After months of research, debate and jurisdictional strife, Canada is on its way to having a national securities regulator to oversee the country's capital markets. On June 22, finance minister Jim Flaherty appointed Doug Hyndman, chair of the B.C. Securities Commission, to head up the transition team to get the wheels turning. If all goes smoothly, Flaherty said he expects the national securities regulator plan to be ready by June 2010 and in place within three years.
Canada is the only member of the G7 industrialized countries without a national securities regulator, which seems to be the predominant argument of why one is needed here. Some of the benefits Flaherty has touted are enhanced investor protection, financial security and stronger risk identification, particularly in the face of economic crises. Ian Lee, director of the MBA program at the Sprott School of Business at Carleton University, agrees with these benefits.
"It's good economic policy to have a strong national regulator that provides one common set of rules for everyone in the country," said Lee. "It produces a much more efficient system."
There has also been the argument that having a national securities regulator, as opposed to one for every province and territory, would prevent a problem like the asset-backed commercial paper freeze that occurred in Canada in August 2007.
As Guy David, a former Bank of Canada staff counsel, writes, "prescriptions in the expert panel report would require the alignment of policies between the OSFI (the Office of the Superintendent of Financial Institutions) and the national securities regulator to close gaps such as those that contributed to the ABCP freeze. It is argued that with both bodies answering to the minister of finance, a more seamless regulatory environment would result."
While it is still early to tell how a new regulatory body for capital markets would affect the mortgage industry, syndicated mortgages - defined as mortgages where two or more investors lend money on the security of real estate - could be affected because they're not regulated by the same legal bodies across the provinces.
"It's not consistent across the provinces how syndicated mortgages are treated - in some places, it's the securities regulator that handles it and in others it's the mortgage broker regulator," said Roger Sobotkiewicz of the Saskatchewan Financial Services Commission. (In Saskatchewan, syndicated mortgages are dealt with by the province's securities commission.)
Lee says that if the creation of a national securities regulator is successful, it could lead to other national regulations that encompass all financial institutions under one umbrella.
"I would hope that we eventually could move toward a true national securities regulator that would regulate insurance companies, credit unions, banks, investment banks, mortgage companies, hedge funds, credit default swaps - in other words, any form of financial transaction," he said.
Lee added brokers could come under this for-now imagined "super regulator" if they are looked at as a representative of a pool of investors.
"If we think of mortgage brokers as players in the capital markets, then they could come under federal regulation," he said.
While it's too soon to tell whether this will be the case or not, there are obvious pros and cons to this possible scenario. "I think there are benefits in terms of regulatory commitments," said Verico president and CEO, Colin Dreyer. "You would still have to deal with regional flavours or provincial differences, but that being said, if there is a general standard in terms of education and regulatory expectations ... it would elevate the professionalism and the level of consumer acceptance."
He was also careful to note though, like many other industry leaders that CMP contacted, that "nobody knows how this is going to look - there is so much unknown about it, so we need more information and then we can form better opinions around it."
An example of a country where brokers are coming under federal regulation is Australia, where mortgage brokers are required to be registered with (and licensed by) the Australia Securities and Investments Commission (ASIC) by next year. Nick Sherry, the country's minister of superannuation and corporate law, said the new regulator will bring increased consumer protection and higher industry standards.
As for the industries (aside from capital markets) that will be affected by Canada's development of a national securities regulator, it's too early to make solid predictions.
"Really, the ball is in [the government's] court because they're the ones determining the legislation and the mandate," said Sobotkiewicz. "We'll just have to wait and see."
Canada's road to a national securities regulator
Jim Flaherty proposed a national securities regulator in his January budget that would be open to all provinces and territories wanting to join. Doug Hyndman, chair of the B.C. Securities Commission, will head the transition office to plan for the new regulator. Bryan Davies, chair of Canada Deposit Insurance Corp., will serve as vice-chairman.
Alberta and Quebec threatened a Supreme Court challenge to the proposal for a national securities regulator, arguing it would be too "Toronto-centric." Ontario and B.C. are on board with Flaherty's proposal.
Flaherty told BNN that he is aiming for a plan for the new regulator to be completed by June 2010.
Sources: The Globe and Mail, The National Post