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FSB urges Canada for one securities regulator

Tuesday 31 January 2012 – by Andrew Hickley

Canada has been urged to establish a single national securities regulator despite being praised for its oversight of firms in the lead-up to the financial crisis.

In a peer review of the country released on Monday, the Financial Stability Board argued that that a single securities regulator would provide the industry with “clear economic benefits”.

Advantages would include “a simpler regulatory infrastructure, easier coordination and information sharing in the event of market distress, and improved cross-border cooperation”, it said.

Canada’s securities sector operates in a unique situation where firms are regulated by thirteen different provinces and territories, depending on their location.

While almost all of the securities commissions use a passport system, which essentially allows a firm to register under one commission and then be allowed to operate in another, institutions including the International Monetary Fund and the OECD have led calls for a single securities regulator to be established.

The government recently lost its bid to merge each of the current regulators, because the country’s Supreme Court branded the move as “not valid” with its constitution.

The FSB’s report also found that Canada’s tight supervision in the lead-up to the financial crisis provides “valuable lessons” for other worldwide regulators.
Canada was able to absorb fiscal shocks by having a comprehensive regulatory and supervisory framework able to address domestic concerns, the review says.

Banks were also forced to hold capital beyond the international Basel II standards while keeping well-diversified funding profiles and conservative loan underwriting standards.

Additionally, the country is praised for taking on board IMF recommendations in a number of areas, including bank supervision.

The report says: “The Canadian authorities have made good progress in addressing the [IMF’s] recommendations on banking supervision, stress testing and the early intervention regime.

“The Office of the Superintendent of Financial Institutions has increased its supervisory resources and enhanced its on-site inspections; recent revisions and clarifications to the intervention and resolution regimes have reduced the room for discretion and forbearance and have increased accountability; and the Bank of Canada conducts regular stress tests, in collaboration with OSFI, as an input to its Financial System Review.

“OSFI is encouraged to continue to assess the effectiveness of its on-site supervisory activities, including the potential risks associated with the use of external experts.

“The adoption of Basel III and of the Financial Stability Board’s Key Attributes for Effective Resolution Regimes should further enhance the resolution framework.”

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