February 14, 2008
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.
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
"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
"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.