Canada needs a federal regulatory agency for financial markets. It’s the only G7 country that doesn’t have one.
But CUPE is concerned that a federal government-appointed panel’s recommendations are the wrong solution for protecting pensioners, small investors and pension funds and for stopping white collar crime.
Inadequate regulation, deregulation and self-regulation of derivatives and financial markets are now widely acknowledged to be the main cause of the financial crisis, which is now affecting pension funds, pensioners and small investors.
And Canada has an abysmal record enforcing and prosecuting financial crime:
- Hollinger shareholders looking to recoup the money they felt Conrad Black had looted from the company charged him in the US because it has tougher securities laws.
- None of the perpetrators of the Bre-X fraud were ever convicted under Canadian law, even though the phoney gold mine cost investors - including major public employee pension funds like OMERS and OTPP - billions of dollars.
- The fraud trial of LiveEnt executives Garth Drabinsky and Myron Gottlieb - accused of defrauding investors of up to $500 million - heard closing arguments last week - seven years after police first laid charges.
And yet the final report [108 page PDF, 660KB] of the Harper government’s Expert panel on securities regulation proposes so-called “principles-based” regulation to solve the “serious shortcomings” of the securities regulation system.
Ironically, the North American derivatives market, which saw a massive growth in unregulated derivatives, especially credit default swaps, a major cause of the current financial crisis, is governed by principles-based regulation.
According to Canadian Business columnist and forensic accountant Al Rosen, “anyone saving for retirement should cringe at the mere mention of a principles-based framework with respect to securities regulation.”
In a column that predates the release of the Expert commission report, Rosen argues that a system needs both rules and principles to work well.
Is the “slippery slope” of principle-based regulation the “competitive advantage in global capital markets” that the expert commission is seeking to create?
Regulators need broad-based powers to deal with changing circumstances and financial “innovation” but this shouldn’t come by weakening rules.
Federal government proposals to create a national securities commission will only help if they are accompanied with much stronger regulation and enforcement for the whole financial industry.
Namely:
- end the reliance on industry-run self-regulatory organizations to provide investor protection.
- any new federal financial regulatory agency must be under the jurisdiction of the Auditor General and directly accountable to the federal government and Parliament.
- enforcement of securities law needs to be much stronger and more effective.
- white collar criminals should get the same treatment as other criminals.