The Law of Speculation (see previous blog posts) currently has at least 14 important regulators in Ontario, composed of provincial and federal agencies/ministries and several private self-regulatory organizations (SROs). There is significant overlap between the organizations' missions, and even their strategic plans have a high degree of overlap in what they say they do.
This article, like the others in this series, looks at speculation broadly, including many areas outside of what is often considered
investment like gambling, consumer purchases, banking products, insurance, etc. By reading what the regulators say they're doing it becomes clear that they have very similar operations, and some of them even make the case for reform within their own strategic plans.
Below are the key regulators. But there are many government regulators that affect or directly regulate markets such as the Ontario Energy Board that are outside of the scope of this article but do impact speculative activities.
An Overview Of The 14 Regulators
Who Regulates Speculation Across Canada?
|Federal||BoC||Lending, inflation and markets||$400m|
|Federal||CMHC||Real estate and lending||$770m|
|National (SRO)||MFDA||Mutual fund dealers||$35m|
|National (SRO)||IIROC||Investments and trading||$105m|
|Ontario||RECO||Real estate dealers||$25m|
|National||CSA||Investment law harmonization||No published budget|
|Ontario||FSRA||Financial institutions, co-ops, and insurers||$65m|
|Ontario||OSC||Investments and trading||$135m|
What The Regulators Say About What They Do
Below are the key regulators that regulate speculation in Ontario, organized by their annual budget. Although not all of the budgets for each of these regulators is within the scope of the "Law of Speculation", it's still useful to see their relative budgets as an approximation of power and relevance. What's quoted below is from their latest strategic/business plans that relate to the previous articles in this series of blog posts. All of the reports are current to 2020/2021.
CRA (tax, $7.9b/yr budget for entire tax administration system)
The Canada Revenue Agency (CRA) does far more than deal with tax related to speculation, but it is a component of the national tax authority's total budget of $7.9 billion per year. The tax department has a unique relationship with speculation (i.e. tax) and its annual reports have little to say about regulatory improvement, risk, or speculation, unlike the other regulators below, all of whom mention these topics.
CMHC (housing, $770m/yr budget for operating expenses-only)
The Canada Mortgage and Housing Corporation (CMHC) isn't traditionally known as a speculation regulator. It's principal aim is to "make housing affordable for everyone in Canada". Regulating speculation is at the core of its operations, as can be seen from the first paragraph of the Chairman of the Board of Directors' statement in the 2020 Annual Report (page 7):
CMHC introduced measures to provide mortgage relief and keep liquidity in the finance system to ensure Canadians could stay in their homes.
The President's message in the annual report (pages 8-9) is even more revealing about CMHC's role in regulation of speculation in describing the CMHC's response to COVID-19:
We immediately relaunched the Insured Mortgage Purchase Program (IMPP) in collaboration with the Department of Finance and the Bank of Canada. This version had significant technical improvements from the first generation used in 2008–2009. We increased the pool of qualifying mortgages for the program to accommodate changes in the bank regulatory environment. ...
While Canadian funding markets were being stabilized, another team worked with the private mortgage insurers and lenders to coordinate mortgage deferrals. A third team launched the Canada Emergency Commercial Rent Assistance (CECRA), a program that saved thousands of small businesses. ...
Our worst fears of a house price crash did not materialize.
BoC (lending, inflation, $400m/yr budget for core expenditures)
The Bank of Canada (BoC) aims to set lending rates, inflation, and makes dramatic interventions in financial markets. The "Governor's foreward" on page 3 of the 2020 Annual Report describes the BoC's interventions in speculative markets last year:
To address critical liquidity shortfalls in the financial system, the Bank designed and implemented 11 exceptional programs, 8 of which were entirely new. These included the new Standing Term Liquidity Facility, purchase programs for corporate and provincial bonds, and our Government Bond Purchase Program.
To support confidence and provide monetary policy stimulus, the Bank’s Governing Council made three emergency interest rate cuts, bringing the policy interest rate to its effective lower bound. In July, the Council committed to keeping it there until economic slack is absorbed so that the inflation target is sustainably achieved. The Bank reinforced and supplemented this exceptional forward guidance with a commitment to continue its large-scale asset purchase program until the recovery is well underway. This program has been effective in making borrowing more affordable for households and businesses.
OSFI (banks, $190m/yr budget)
The Office of the Superintendent of Financial Institutions (OSFI) aims to
Protect depositors, policyholders, financial institution creditors and pension plan members, while allowing financial institutions to compete and take reasonable risks. (Page 3 of the 2019-2022 Strategic Plan)
Their priorities today are, under Goal 1:
1.2. Apply a more risk-based and principles-based approach to regulation and supervision.1.3 Further adapt regulatory and supervisory approaches to the size and complexity of financial institutions, as well as their risk profile; specifically the risk that they pose to the rights and interests of depositors, policyholders and creditors.
And Goal 2:
2.1. Continue to develop OSFI’s regulatory and supervisory approaches to technology risks, including digitization, cloud computing, risk modelling and cyber risk.
OSC (securities and more, $135m/yr budget)
The Ontario Securities Commission (OSC) Business Plan for 2021-2023
Introduction section (page 3):
Since financial services in general, and securities markets in particular, are increasingly global in their conduct, influence and evolution, developments outside Canada also affect operational activities of the OSC as well as the ability to achieve its mandate.
Their mandate (page 4, but also as set out by the legislation governing the OSC):To provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets and to contribute to the stability of the financial system and the reduction of systemic risk.
They recognize the globalized market and the need to simplify regulations (page 5):
... an environment where capital is available on competitive terms, streamlining regulation with a strengthened focus on reducing regulatory burden and maintaining Ontario's financial services sector as a world leader and significant contributor to the economy. ... Efforts to streamline regulation, improve operational efficiencies, and lower regulatory burden are expected to have a significant impact on reducing compliance costs, including for development-stage and innovative businesses.
IIROC (investments SRO, $104m/yr budget)
The Vision that the Investment Industry Regulatory Organization of Canada (IIROC) has in their three year Strategic Plan that began in 2020 is (on page 3):
Inspiring confidence and deterring wrongdoing by having and using robust and appropriate enforcement tools
Making the delivery of securities regulation in Canada significantly more efficient
Being known as a trusted, respected, and valued partner by our stakeholders
Being a leading-edge securities regulator
Creating a culture that attracts and retains high-quality employees.
CDIC (banks, $51m/yr budget)
The Canada Deposit Insurance Corporation (CDIC) is a federal agency tasked with ensuring that if certain financial institutions fail there will be a degree of coverage for the loss. From the CDIC's annual report (page 17):
CDIC’s risk philosophy is fundamentally focused on anticipating and being prepared to act against risks that threaten the protection of Canadian savings and the stability of the financial system.
From the "Message from the Chair" on page 5:
As always, CDIC sees it as vitally important to be there to help Canadians and ensure we are ready to step in quickly and responsibly to contribute to financial stability.
AGCO (gambling, $85m/yr)
For the Alcohol and Gaming Commission of Ontario (AGCO), the Executive Summary of the Supplementary Note to the 2021-2022 Business Plan (post-Auditor General report):
The AGCO’s continued transition to a risk-based, outcomes-based and compliance-focused approach to regulation has provided greater flexibility for regulated entities in terms of how they achieve regulatory compliance. At the same time, these approaches have also enabled the AGCO to more effectively manage risks, while prioritizing resources to ensure its approach to regulation is fair and responsive to sector needs, and protects the public interest.
In the most recent annual report the AGCO notes that:
The AGCO has been taking a modern and progressive approach to regulation, based on risk, the achievement of outcomes, and providing a degree of business flexibility and efficiencies for the lottery and gaming industries. These efforts support and align with key government objectives for enhanced efficiency in the delivery of public services and reducing regulatory burden and increasing consumer choice. In addition, the AGCO’s outcomes-based approach to regulation has resulted in significant cost avoidance annually for the AGCO, as well as cost savings, cost avoidance, or additional revenue for Casino Operators.
FSRA (investments, insurance, $66m/yr budget)
The Financial Services Regulatory Authority of Ontario (FSRA) 2019-2022 Business Plan describes their mandate as:
promote high standards of business conduct,
- protect the rights and interests of consumers
- foster strong, sustainable, competitive and innovative financial services sectors
- promote good administration of pension plans
- protect and safeguard the pension benefits and rights of pension plan beneficiaries
- provide insurance against the loss of part or all of deposits with credit unions
- promote and otherwise contribute to the stability of the credit union sector in Ontario with due regard to the need to allow credit unions to compete
- effectively while taking reasonable risks
On page 8 is a conclusion of an Expert Panel commissioned recently that has found that:
With financial services and pensions sectors changing at a rapid pace ... Ontario needs a regulatory authority that is flexible, innovative, and in possession of expertise appropriate to match the consistently evolving financial environment. We call not for amendments, revisions or improvements to the existing regulatory framework and apparatus, but for the replacement of the current regulatory structure and approach with a nimbler and more accountable one.
The "Cross-Sector Priorities" section notes (on page 21) that:
A regulatory framework that imposes unnecessary costs (e.g., by not being risk-based), or has unclear or unnecessary guidance and requirements, can negatively impact Ontario’s economy, regulated businesses and individual consumers. For that reason, FSRA has made reducing regulatory burden a cross-sector priority
On enabling innovation through "Regulatory Effectiveness" (on page 26):
Older, inflexible regulatory frameworks hold back innovators and limit consumer choice and the economic benefits of industry competition and innovation.
Page 37 on the subject of insurance conduct notes criticisms that FSRA has received:
Concerns have been expressed by the [International Monetary Fund] and by leading insurers and industry associations that [FSCO, the predecessor organization to the FSRA] does not have adequate resources to monitor conduct across so many individual [insurance] agents.
FINTRAC (anti-money laundering, virtual currency, $55m/yr budget)
Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) 2020-2021 Department Plan notes on Page 3:
As business and consumers embrace new and evolving technologies, Canada’s financial sector is becoming increasingly agile with: the introduction of non-traditional banking models (such as virtual currency); the entry into the financial system of technology companies; and the endless possibilities being driven by financial technology (FinTech) and regulatory technology (RegTech) as examples. Some of these changes are incremental in nature, but many are revolutionary, providing a significant challenge to regulators in understanding new financial products and combatting criminal exploitation. Importantly, new and emerging businesses may not understand their money laundering and terrorist financing risks or have in place appropriate programs or resources to protect their businesses from these criminal threats.
RECO (real estate, $24m/yr budget)
From the Real Estate Council of Ontario (RECO) 2019-2023 Strategic Plan "CEO's Message":
Our government-directed mandate remains the same—to serve the public interest through a fair, safe and informed real estate marketplace.
Under the heading "Consumer Expectations" on page 4:
There is a demand for more information and that it be instantly and easily accessed — allowing buyers and sellers to do their own research and analysis. Generational and cultural differences mean there is a wide spectrum of how consumers wish to engage with the real estate market—and they must all be accommodated.
MFDA (mutual funds, SRO, $34m/yr budget)
The "Who We Are" section on page 1 of the 2018-2022 Strategic Plan for the Mutual Fund Dealers Association (MFDA) is:
The MFDA performs a vital role in the wealth management industry by overseeing the conduct of its Members and the advisors they employ. While the MFDA’s regulatory mandate is to protect investors, we also support a regulatory compliant and diverse membership. Diversity benefits investors as it provides choices in advisory services and increases investor access to quality advice. We contribute to the financial well-being of Canadian investors and uphold public confidence in Canada’s mutual fund distribution industry.
MGCS (consumer purchases, ~$30m/yr budget)
Many consumers make purchases that they hope will result in an asset that goes up like luxury handbags or sneakers. The Ministry of Government and Consumer Services (MGCS) oversees this area and payday loans (any many other areas unrelated to speculation). Their mission in the 2020-2021 plan:
The ministry has an important education and public-information role and is a recognized and trusted resource for consumers and businesses providing them with essential tools and knowledge. It plays a leadership role in supporting a fair, safe and informed marketplace.
They perform their role to protect theconsumer interest through proportionate and risk-based compliance and enforcement action against non-compliant businesses
The Ministry requires that businesses disclose certain details (for purchases over $50) before the sale is made, including
a fair and accurate description of the goods or services, contact information, and the customer's rights.
CSA (securities harmonization, unknown budget)
The Canadian Securities Administrators (CSA) is a harmonization body for provincial securities regulators that does not publish financials or disclose its budget. Its "Interim Progress Report 2020" explains the CSA's role:
Its objective is to improve, coordinate and harmonize regulation of the Canadian capital markets, to ensure the smooth operation of Canada’s securities industry and to secure close collaboration in the delivery of regulatory programs and securities law enforcement.
The CSA's strategic goals align with its provincial securities regulators members, for example, goal #1 on page 4:
Enhance the advisor-client relationship and the registrant conduct rules to improve investor protection
The CMAIO is a similar interprovincial coordinating body that's recently been put on hold pending the resolution of COVID-19 in Canada.
Other Functions & A Unified Regulator
Some of the above regulators have functions that are outside of the Law of Speculation. A reform that moved the speculation side of their operations to a new organization wouldn't necessarily mean the organization would disappear but some could be merged. But what could be merged and what would its budget be like in comparison to the companies that they would be regulating?
If half of OSFI ($95m), all of the OSC ($135m), IIROC ($105m), half the AGCO ($40m), the FSRA ($70m), half of FINTRAC ($30m), RECO ($25m), MFDA ($35m), and half of the MGCS ($15m) were merged into a single organization, its budget would be approximately $570m. But even being more than four times as much as any of the predecessors, the combined organization would still be tiny compared to the companies they would be regulating.
TD Bank alone spends $1150m on "professional and advisory services". The annual budget for employees at the Sun Life insurance company is $4400m. Even a combined regulator, at $570m, would still be quite small in comparison to the organizations its expected to supervise.
It would be useful to unify the disparate threads into a single rope.