Investor advocates will be disappointed with Thursday’s federal budget, which does nothing to clear up the ongoing fight over dispute resolution in the banking sector or show a new way forward to a national securities regulator.
The government hasn’t entirely dropped its promise of a national securities regulator from the budget, but its ambition is severely curtailed in light of the Supreme Court of Canada’s recent decision that deemed the feds’ proposed legislation to be unconstitutional.
The government says it will respect that decision, but maintains that it is consulting with the provinces on a more co-operative model, noting that a number of provinces, “have reaffirmed their interest in working on a co-operative basis toward a common securities regulator.” However, there’s no new commitment to making it happen.
More discouraging for investor advocates is the fact the government isn’t proposing to do anything to resolve the fissures between the banks and the dispute-resolution service, the Ombudsman for Banking Services and Investments. Some hoped that the government would back OBSI or introduce some other mandatory dispute-resolution plan to address the fact that two of the big banks have pulled out of OBSI (Toronto-Dominion Bank this past October and the Royal Bank of Canada in 2008) — leading OBSI to warn that its survival may be in jeopardy. However, there’s nothing in the current budget that does that.
The budget does propose to solidify federal jurisdiction over the banks. The government says it will introduce a preamble to the Bank Act to clarify that banking regulation is a federal matter and avoid the possible creation of local rules.
The government is also reiterating its commitment to maintain the separation between banking and insurance by promising to propose a legislative amendment to clarify the prohibition against banks offering life annuities or similar products.
In addition, Ottawa says it intends to introduce legislative amendments to support central clearing of standardized over-the-counter derivatives, which it has promised to do as part of its G20 commitments.
The feds are also taking a couple of steps designed to improve access to capital for financial services firms, thereby enhancing financial stability. In addition to proceeding with a legislative framework for covered bonds, as it pledged to do in last year’s budget, the government is also promising legislative amendments to allow public sector investment pools that satisfy certain criteria to invest directly in Canadian financial services institutions.
The government notes that many countries allow public sector investment pools to invest in financial services institutions while Canada only allows limited access. This puts Canadian financial services institutions at a disadvantage when raising capital, it says. Allowing these investors to buy into Canadian financial services firms, subject to approval by the minister of finance, will provide new sources of stable long-term investment, it says.
In terms of the covered bond framework, which also represents a new source of funding for Canadian mortgage lenders, the government says that the Canada Mortgage and Housing Corp. will administer the program. Separately, the government is also promising enhancements to the governance and oversight framework for CMHC, saying that it will propose legislative amendments to strengthen CMHC’s oversight and to ensure that “its commercial activities are managed in a manner that promotes the stability of the financial system.”