April 10, 2008
TORONTO — Politicians are looking at beefing up regulatory oversight of
the securities industry in the wake of Canada's $32-billion commercial
Finance Minister Jim Flaherty said yesterday that Canada has regulatory
power over banks and insurance firms, but is in a rare position globally
because it doesn't have regulatory powers with respect to securities.
"Maybe brokers should understand what they're selling," the minister
said in an interview with Business News Network. "We can start there.
There's some responsibility."
"We regulate banks in Canada from Ottawa, and we have certain standards
we expect the banks to meet," he said. "We also have regulatory powers
with respect to insurance and so on. We don't with respect to
securities, which is an unusual situation when you look at countries
around the world."
Mr. Flaherty suggested that provincial securities regulators shoulder
some of the blame for the ABCP problem, and said this is another reason
why Canada needs a national securities regulator, something he's been
advocating for years.
"The primary responsibility in this situation has been that of
provincial regulators because most of these entities that were selling
the product were subject to provincial regulation," he said.
But legislators are also looking at whether the system needs new rules.
Liberal finance critic John McCallum said one of the things the House of
Commons finance committee will look into is whether the brokerage
industry needs more oversight.
Canada's securities industry is self-policed by the Investment Dealers
Association of Canada. The IDA said this week it had received 88
complaints from investors whose brokers recommended they buy third-party
asset-backed commercial paper and it was investigating some cases.
Mr. McCallum also wants to explore "the due diligence on the part of
certain provincial regulators, or lack thereof."
"There's a limit to what you can do," he said. "You can't legislate
against fear and greed and the possibility of any kind of financial
crisis in the future, that would be naive. But I think you can hope to
at least change the rules so that this kind of problem doesn't recur."
The finance committee held a special hearing in Ottawa yesterday on
ABCP, and a number of retail investors said they felt duped into losing
their life savings and asked the government for help.
Investor activists gave harsh accounts about how their financial
advisers had stashed their savings in third-party ABCP, telling clients
it was as safe as guaranteed investment certificates or treasury bills.
The market for third-party ABCP ground to a halt in August after
investors were spooked by its potential exposure to the U.S. subprime