 Lee Cutrone
Managing Director, Industry Relations
What does Canada think about creating a systemic risk regulator?
August 13, 2009
Recently, I moderated an event in Canada to discuss the results of a survey Omgeo conducted amongst its operations clients. The purpose of the survey was to get a clearer view of what the marketplace looked like and what steps firms were already taking to create a stronger industry. We discussed a number of themes – how our priorities have changed, how our relationships have changed, our views of risk and the emerging regulatory landscape. However, given the debate going on about having a systemic risk regulator in Europe and in the US, it was interesting to get Canada’s perspective on whether they would value this kind of regulator or not. After all, the financial crisis left the country relatively unscathed while the leading global players toppled before them.
To preface the discussion, currently, Canada does not have a national regulator, as securities are regulated provincially. Canada’s regulatory system, in fact, is considered to be the “Wild West” of the investment world, according to David Dodge, former Governor of the Bank of Canada. However, earlier this year, Tom Hockin, the head of a government-mandated expert panel on securities regulation, commissioned a final report and recommendations for a national regulatory system. The plan was not well received by Finance Ministers of Alberta, Manitoba and Quebec despite the efforts that it took to demonstrate protection of investors and allowances it made for the country to operate globally.
From the conversations that took place at the event, it seems the consensus is that Canada does need a systemic risk regulator, in some capacity. One professional on our panel felt that without a central regulator, investors in Canada would have likely made the same risky investment decisions during boom times, but that they had just gotten into the game late.
Of course, along with the general agreement that a systemic risk regulator was a good idea came a myriad of concerns. Chief among them was the concern that a national regulator would likely institute minimum capital requirements that would be overreaching. Additionally, it might create a laundry list of compliance issues, between the provincial levels and the national level that would create a barrier for entry for smaller firms versus the larger players that have more resources.
There were also questions about what exactly a systemic regulator would do. Up until now, the provincial Canadian regulators’ focus on systemic risk has been chiefly concerned with clearing and settlement issues, not delivering far-reaching mandates to maintain financial market stability. “Could someone even draft a job description for this role?” one member of the panel asked. There was clear concern in the room that an agency to regulate systemic risk across the country could be more far reaching than necessary.
What was clear, however, was the general sentiment that Canada is looking to compete more on a global scale no matter what regulatory agencies or measures come forth. With competitors weakened, it is an opportune time in history for Canada to rise above the fray and succeed in a global market.
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