March 1 marks the end of the “midnight madness” frenzy that dominates the first 60 days of the financial services industry’s year. Most industry people breathe a huge sigh of relief when this ends. It is a time when they can take stock of where they are, how well they have done, what they still need to do and what has been happening in the world around them. They usually find that not that much has happened while they have been otherwise preoccupied.

This year is different. There is an undercurrent of fundamental change churning just beneath the surface. It is touching all aspects of the financial services industry.

On the regulatory front, there are signs that opposition to a single Canadian securities regulator is crumbling in the face of the logic and simplicity of the Crawford Task Force’s proposals. These proposals contemplate a pooling of regulatory responsibilities and resources with safeguards against domination by any one jurisdiction.

One sign of change is the recent decision by the government of British Columbia to shelve its new Securities Act and to concentrate on harmonizing securities laws by working with the Canadian Securities Administrators. Another sign is the comment by B.C. Attorney General Wally Oppal, who has said the province remains open to any ideas to improve Canada’s moth-eaten jumble of securities rules and regulators, and is “not married” to one solution. Oppal went on to say: “We might go there some day. We would consider it. We’re not dismissing it out of hand at all.”

Yet another sign is the acknowledgement from Alberta Finance Minister Shirley McLellan that the Crawford Task Force proposals “certainly offered us food for thought.”

One has to wonder whether the provinces are not really closer than they appear to be on the issue. Harmonization of securities laws is the mantra of those of the CSA, which is participating in the so-called “passport” system of regulation, and harmonization is not that far from the common securities laws that Ontario and the Crawford panel are advocating.

The reality is that the efforts toward harmonization have been going on for years, with all provinces participating. It is time to take the next step and roll out the work that has been done on harmonization into a single body of laws that will apply throughout the country. The Crawford Task Force recommendations provide the structure for doing this.

On the self-regulatory front, it looks as though we may soon see a new self-regulatory organization emerge from the bones of the Investment Dealers Association of Canada, Market Regulation Services Inc. and, hopefully, the Mutual Fund Dealers Association.

This long talked-about rationalization would make a lot of sense for the industry, investors and the functioning of fair and efficient capital markets. The toughest hurdle is that it may require a changing of the guard — something that is increasingly occurring throughout the Canadian financial services sector and regulatory scene.

There are also changes afoot on the business front. Examples include the moves (so far, mainly in the U.S.) by various investment dealers/bankers to sell their asset-management divisions. They have at last awakened to the conflicts of interest that come with structuring and managing proprietary products and expecting their sales forces to sell them.

Another example can be seen in the moves to bring money management in-house rather than continuing to outsource it.

There are other changes on the business front that are challenging the continued reign of mutual funds as the investment vehicle of choice for Canadians. Mutual funds and segregated funds are now morphing into other structured products, such as principal-protected notes, which substantially operate without regulatory oversight.

And exchange-traded funds are moving from being passive investments to actively managed investments that are comparable with mutual funds but are not regulated as such nor are they subject to the normal disclosure requirements and prohibitions against conflicts of interest.

A lot is happening. The change in the way business is done, and in what business is done, is something on which we need to keep a close watch. IE