Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House




IMF gives low grades to market regulators
Canadian banks lauded, but finance sector study says watchdogs lack bite

February 14, 2008

Madhavi Acharya-Tom Yew
Business Reporter

Canada's banking system has garnered top marks from the International Monetary Fund, but the agency also found the country's stock market regulators need to do a better job of enforcement.

In its financial review, released yesterday, the IMF also renewed calls for Canada to move to a single securities regulator to replace the current system of 13 provincial and territorial agencies.

"Moving to a single regulator would allow policy development to be streamlined, reduce compliance costs and improve enforcement," according to the IMF.

Federal Finance Minister Jim Flaherty welcomed the report, and said that the government would consider its recommendations.

However, Quebec's finance minister continued to express reservations about moving to a single regulator.

"The Canadian financial sector is among the world's most highly developed and offers many examples of best practice," the IMF found in its review.

"The institutions, markets, infrastructure, safety nets and oversight arrangements that comprise the system are sophisticated."

The IMF, a Washington-based organization that oversees the global financial system, is in the process of reviewing national financial systems. The report on Canada is the first among G-7 countries.

The review found that Canada's financial system is very stable, and that "banks also appear to be able to withstand specific large single factor shocks for credit, market, and liquidity risk."

However, enforcement of securities laws is "still in need of considerable improvement. The development of a co-ordinated approach to enforcement between criminal and securities law enforcement, with clear lines of accountability and benchmarks, seems to be missing," the report found.

"Criminal enforcement appears to be particularly weak. While comprehensive statistics are not available, market participants commented that very few cases have been taken for criminal prosecutions and even less have resulted in criminal sanctions."

In its review, conducted last September, the IMF relied on self-assessments by the Ontario Securities Commission and its Quebec counterpart, the Autorité des marchés financiers or AMF, as well as meetings with regulatory officials, issuers and market participants.

Quebec has rejected calls to move to a single national regulator. It has been a proponent of the so-called passport system, where securities that are approved for sale in one jurisdiction are given a green light in others. In this regime, power would not shift to a central body.

"As in the past, the minister still has some reservations. We do not believe (a single regulator) is the best way to go," Catherine Poulin, spokesperson for Quebec's minister of finance, said in an interview. "We do believe in the passport system."

It's not the first time the IMF has made this suggestion.

"Canada is currently the only G-7 country without a common securities regulator, and Canada's investors deserve better," the IMF's managing director told the Economic Club of Toronto last summer.

Quebec Finance Minister Monique Jérôme-Forget alleged last fall that Ottawa was pressuring the IMF to weigh in on the debate.