Investors Scrutinizing the Regulators

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Regulators share blame for ABCP collapse, Flaherty says


April 12, 2008 at 1:02 PM EDT

Federal Finance Minister Jim Flaherty signalled that provincial securities regulators deserve blame for the collapse of Canada's asset-backed commercial paper market, and said they and the firms they oversee will be will be subject to scrutiny as he pushes Canada's financial services industry to upgrade its standards.

"The financial institutions aren't just the banks,'' Mr. Flaherty told reporters in Washington, where he is attending a meeting of the 185-member International Monetary Fund.

"We had various entities selling asset-backed commercial paper to people. We have a number of investors in Canada who feel they have not been well treated and didn't know what they were buying, or were misled on what they were buying and have been through a difficult process...So we need to look at those institutions as well and who's regulating them and are they disclosing properly and is their due diligence being done by them with respect to the products they are selling.''

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 mortgage market, leaving the holders of the paper with $32-billion of potentially worthless assets.

Mr. Flaherty and his counterparts in the Group of Seven countries yesterday pledged to take a series of steps within the next 100 days aimed at restoring confidence in the financial system.

Canada's finance minister said yesterday that he would assemble Canada's banks within the next couple of weeks to go over the G7's expectations, which include a commitment from lenders to disclose their exposure to complex assets such as securities backed by risky subprime loans.

Mr. Flaherty is using the G7's push for better financial regulations to back his lobby for a single national securities regulator, suggesting today that the ABCP mess might have been avoided had there been one overseer of the securities industry rather than 13.

"There's no confusion, it's the provincial securities regulators,'' Mr. Flaherty said when asked if there was uncertainty over who was responsible for the ABCP market. "We have the banks of course, but the banks were only part of that process and most of it was relegated to entities that are under the supervision of provincial securities regulators.''

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