Ontario’s new, purportedly pro-business Conservative government has revealed its fundamental ignorance regarding financial markets by bumbling its way into the long-running debate over mutual fund fee structures.
Although making a show of stomping on regulation and undermining bureaucrats may play well with the new government’s political base, it just doesn’t work that way in the investment business.
Unlike other forms of regulation that typically impose costs on an industry for the benefit of third parties – such as environmental standards or labour laws – securities regulation is much more of a feedback loop. Robust regulation is essential to investor confidence, and investor confidence is a prerequisite for market participation. Markets in which regulation is regarded as weak or ineffectual inevitably suffer from lack of participation. That weakens liquidity, making markets still more unattractive.
So, although Ontario’s regressive approach to mutual fund fees certainly is unfortunate for retail investors, what matters more is the provincial government’s ham-fisted treatment of regulatory policy in general.
By undermining the policy independence of the government’s own regulatory agency, the Ontario Securities Commission, and disregarding the years of toil that have gone into the creation of the latest proposals on mutual fund fees, the provincial government isn’t striking the courageous blow against the bureaucracy that it imagines. Rather, it is inviting damage to investor confidence. Displaying a willingness to change the rules of the road on a whim is only going to sow the seeds of investor uncertainty and dent the appeal of Ontario’s markets.
That this is all happening this year – the 10th anniversary of the beginning of the global financial crisis, which so clearly demonstrated the effects of crumbling confidence in and deterioration of trust in financial markets – is somewhat ironic.
There are plenty of other industries in which rolling back regulation is unambiguously good for business, but the investment industry isn’t one of them.