B.C. idea throws open the doors
Financial Post - Thursday February 21, 2002
By Jonathan Chevreau
Proposals would allow Canadians to buy U.S. funds
Why isn't the world's largest index fund company, Vanguard, not yet in Canada?
If proposals released earlier this week by the British Columbia Securities Commission come to fruition, it would be a lot easier for foreign mutual fund companies like Vanguard, or indeed foreign discount brokers, to serve the Canadian market.
The report, "New Concepts for Securities Regulation," contains a number of sweeping recommendations which -- were they implemented -- would have potentially as momentous an impact as the two Ontario Securities Commission reports on the fund industry by Glorianne Stromberg.
Of course, just how much of Stromberg's recommendations -- for reform, greater disclosure, elimination of conflicts of interest and so on -- actually came to fruition is open to debate. And whether B.C.'s ideas are implemented also remains to be seen.
If anything, BCSC's suggestions are headed almost in the opposite direction as Stromberg, who advocated more fences and more costs to protect investors from themselves or from allegedly unscrupulous advisors. The BCSC ideas throw open the doors to liberalism, deregulation and global competition.
Still, the six main concepts are a good framework for beginning the process. In brief, the concepts call for replacing the prospectus system with continuous market access, simplifying the registration system, improving the mutual funds regime, trade disclosure, new enforcement and public interest powers, and new civil remedies for investors.
The paper, part of BCSC's deregulation project, will be discussed in consultation sessions and focus groups across the country in March and April.
As well, the Canadian Securities Adminstrators' Uniform Securities Law project is creating a uniform securities act that would be adopted across the country. Among the cities mentioned are Calgary, Montreal and Toronto, in addition to Vancouver.
Cost-conscious do-it-yourself investors are most enthused about the implications of material in the second concept, relating to foreign registrants wishing to set up shop in Canada.
The report notes that "few foreign registrants register in Canada" because to do so requires registering in every Canadian province they wish to operate in; incorporating a Canadian subsidiary; becoming a member of the Investment Dealers Association or the Mutual Fund Dealers Association, participating in things like the Canadian Investor Protection Fund, and complying with various other rules in each province.
How much more tempting for foreign firms if the BCSC suggestins were implemented:
"We would consider allowing foreign mutual funds that are subject to a credible regime of regulation to offer securities in Canada using documents prepared under the foreign regime. If foreign funds were allowed access to our markets, Canadian investors would have more choice, including the potential for lower-cost investment options."
For that, read Vanguard.
Similarly, think of TD Waterhouse U.S., Datek and other foreign-based discount brokers when reading the following: "Consider allowing foreign registrants that do not solicit business from Canadians to advise or open accounts for Canadian residents to trade in foreign securities without registering here. ... Canadian residents who seek out foreign registrants would not have the protections of Canadian law, but that would be their choice. Our responsibility to protect investors in our markets does not extend to protecting them when they voluntarily and without solicitation choose to do business in foreign markets."
Recall that last year there was a major furor when TD Waterhouse forced Canadian users of TD Waterhouse U.S.A. to be "repatriated" back into the arms of the Canadian unit of Waterhouse.
As for Vanguard, whether a change in regulatory attitude would entice it here remains to be seen. Canadian investors had high hopes that the entry of Scudder would help bring down fund management fees, hopes that were eventually dashed when advisors ignored it. Scudder eventually was bought by one of the giant load companies.
John Mountain, vice-president of regulation at the Investment Funds Institute of Canada, worries about trade reciprocity if Canada throws open the doors to U.S. securities firms while keeping the doors closed to Canadian firms wanting to do business south of the border. He also says Vanguard is not representative of U.S. mutual fund fees but at the low end of the cost scale. Many U.S. mutual funds have 3% annual costs, he finds.
Furthermore, Mountain says, 50% of mutual funds sold in Canada are held in RRSPs, which means there would be considerable tax and foreign content considerations involved in fund families like Vanguard being sold in Canada. There would also be tax implications outside RRSPs, particularly with respect to dividends, Mountain says. |
