The battle of the regulators

My column today focuses on how the federal government has made a number of strange and unlikely claims about the current securities regulatory system and how these claims have been repeated by media and business writers as though they were self-evidently true.  For example, Finance Minister Jim Flaherty stated in a speech recently that:

It is a source of awkwardness if not embarrassment internationally, when you look at the Canadian financial system, the strength of our financial institutions, both the banks and our three large life companies and others, and you look at the integrity of our financial institutions, the integrity of our system, the effective regulation that we have nationally in Canada, how well Canada withstood the test of the past two years in credit markets and in the recession. Then we have 13 securities regulators.

Canada does indeed have 13 regulators. The United States has 51, including the SEC. Nobody really believes that regional regulators weaken the national mandate, but this seems to be lost on otherwise savvy analysts who claim that Canada’s bureaucratic regulatory system presents significant obstacles to business and that effective enforcement is really only possible with national control.

It’s a reasonable question to ask: who is precipitating this awkwardness and embarrassment exactly? From Flaherty’s speech, one would surmise that other international actors were taking turns taunting Canada for its feeble securities institutions. But it’s possible that Canada is inventing its own humiliation so that it can replay it for the home audience. And we’re not sure about who’s listening outside of Canada. The world surely is more consumed by the soap opera stories continually emerging about the SEC. No one knows what it would take to overshadow the SEC’s role with the Madoff affair, but virtually everyone agrees that it would need to be huge.

There is suspicion in Canada outside of Ottawa and Toronto that this is all a send-up calculated to make the national regulatory model look good. Feign embarrassment and quickly the federal government hurries to the aid of the damsel in distress. Except the damsel has hairy legs, Popeye’s arms and a hand-crusher handshake.


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