Reactive regulatory reforms harm markets: BCSC

In the wake of a financial crisis, regulators are often highlighted as one of the main culprits of the industry’s downfall, said Brenda Leong, chair and CEO of the BCSC, during a speech for the Vancouver Board of Trade this week.

As a result, she says, “Media coverage and expert opinion strongly implies or even states outright, that whatever has happened is rooted in some fundamental failure of regulation. Calls emerge for new rules or even whole new forms of regulation.”

Read: Fraud slipping past Canadian regulators

She adds that this is intensified if politicians also take up the mantle, demanding fast and effective reforms. In her view, how U.S. regulators responded to the 2008 crisis is a prime example of this trend.

Read: Move slowly on regulatory reform

“The Dodd‐Frank Reform includes 95 separate rule‐making requirements for the SEC, of which they have finalized 30 to date. Requirements relate to areas across the SEC’s mandate and include securitization, derivatives, whistleblower channels, mineral disclosure, and corporate governance reform.”

Read: U.S. Senate seeks action on Volcker Rule

She argues, however, that such speedy reforms can sometimes be too reactive. While regulatory standards do need to be reviewed, putting too much pressure on regulators can cause them to potentially intrude when not necessary, as well as “impose costly and burdensome requirements [that] can easily cause serious and lasting damage to markets.”

She also says reforms developed to prevent a past crisis may do little to stop the next one if the causes are radically different.

Read: The past won’t repeat; go for a dividend

The BCSC finds the best way to boost markets is to work at improving investor confidence first; they’re proposing requirements such as “more suitable and manageable disclosure requirements for early stage companies, which are more relevant and understandable for Canadian investors.”

They’ve also seen growth of the private placement financing market, so “have strengthened oversight of the market to provide more effective protection to those who choose to invest in [potentially riskier] private start‐ups.”

Read the rest of her speech, for more on emerging issues as a result of the crisis and how the BCSC plans to protect the reputation of the industry.