Blogs & Comment

National securities regulator no help

The move toward having a national securities regulator seems to be gaining some momentum and could finally achieve a successful outcome. However, I am not hopeful a shiny brand new regulator at the national level will materially improve things for investors in Canada.
The history of regulatory agencies is that they get captured by the people who are being regulated. Because the livelihoods of those regulated is directly and significantly affected by the rules, they have much stronger incentives to make sure their point of view is heard at the agency. On the other hand, the impact of regulation is more diffuse on members of the public, so they arent always lobbying regulators.
The history of regulatory agencies also seems to be one of shutting the barn door after the horse has bolted. They arent very proactive (e.g. ignored the Madoff whistleblowers); they are more reactive (e.g. charges against Goldman Sachs for alleged double dealing). And when they clamp down after the fact with new restrictions, they often endanger the recovery from past excesses.
If regulatory agencies arent the solution, what is? I believe we are seeing a step in the right direction in Canada with the legislative changes that now make it easier to launch class-action lawsuits. I touched on this in a previous post: observers see Royal Banks recent decision to allow U.S. cash balances in RRSPs as being prompted by class-action lawsuits againstfees on forced currency conversions.
Give people financial incentives to go after those who engage in questionable practices and those practices wont flourish very much. Plaintiffs in class actions dont usually get much of a reward but the lawyers do. Im more optimistic about them cleaning things up than regulatory agencies.