Modernize financial regs to improve productivity: C.D. Howe

The rules and regulations governing Canada’s financial sector need to be modernized, says a study by the C.D. Howe Institute.

The think tank’s report “Productivity and the Financial Sector – What’s Missing,” written by Jeremy Kronick, argues Canada’s financial sector lags behind its OECD peers in contributing to productivity growth. Modernizing the rules and regulations would promote innovation and productivity among banks, credit unions and insurance companies, it says.

“Improving the sector’s productivity would boost not only its own performance, but the economy as a whole,” said Kronick in a release.

Short-term economic growth can be achieved through changes to labour and capital. But long-term growth can only be achieved through technological progress, said the report. Productivity improvement is considered to be the main factor behind economic growth in developed countries.

Read: Global fintech investment tops US$31 billion in 2017: KPMG

Kronick found productivity in the financial sector is held back by an approach to policy that doesn’t properly evaluate the link between competition and regulation, a regulatory structure that doesn’t reflect international best practices, and “less efficient allocation of capital due to disproportionate mortgage lending incentives that favour residential over commercial mortgages.”

The report recommends:

• Removing barriers to the development of fintechs through a functional approach to regulation. This includes removing regulatory barriers that prevent fintechs from competing with incumbents. Kronick refers to a study by the Competition Bureau that has suggestions on how to remove such barriers.
• Tailoring regulatory oversight to be proportionate to the functional risk. If a particular function’s failure is unlikely to pose a risk to the system, oversight need not be as strict as in the case where failure puts the system in jeopardy.
• Revising the Bank Act and Insurance Companies Act to allow more flexibility for banks and insurance companies to make substantial investments in fintechs and insuretechs.

The full report can be read here.

Also read:

How robo-advisors have it rough

Where Canada is a regulatory leader

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.