Re: Bring back the four pillars

The Senate Banking Committee is asking a fair question about bank dominance. But one line in James Langton’s coverage deserves a closer look.

Among the witnesses’ complaints, we are told, is that the banks are “preventing retail investors from making risky bets of their own.”

Suitability rules and the caution of bank-owned dealers are not the problem. They are why the retail system works for ordinary investors. Treating consumer protection as friction gets the priorities backwards.

It also runs against what the regulators have actually found. Last July the Ontario Securities Commission (OSC) and Canadian Investment Regulatory Organization (CIRO) published the results of a survey of nearly 3,000 representatives at the Big Five bank-owned dealers.

One in four said clients had been recommended products not in their interests. One in three said clients had been given incorrect information. Forty per cent said internal sales scorecards were shaping what they recommended. The regulators identified a statistically significant link between sales pressure and unsuitable advice.

That is not a system held back by excessive caution. The witnesses say bank-owned dealers are too cautious for retail investors. The regulators have just shown they are too aggressive.

And nothing happened. Ten months on, the OSC and CIRO have announced no enforcement. The same industry is now at the Senate asking for less of the regulation that did nothing.

The dealers, issuers and lobbyists making that case are all in the room. The retail investors who would live with the consequences are not.

The Committee should hear from them before it agrees to anything.

Harvey Naglie

Regulation

Harvey Naglie is a consumer advocate and policy analyst focused on financial regulation.