Pension funds slam proposed regulatory powers

by Nicolas Heffernan14 Jan 2015
Three of Canada’s largest pension fund managers are protesting powerful new legislation that would give regulators “unbelievable” powers.

The Ontario Teachers’ Pension Plan Board, the Healthcare of Ontario Pension Plan (HOOPP) and the Ontario Municipal Employees Retirement System (OMERS) argued in a joint letter it is inappropriate and unnecessary to bring pension plans under the supervision of a proposed new national securities regulator in Canada.

The Capital Markets Stability Act would give the proposed new watchdog unprecedented powers to order companies or funds under its control to do anything it deems necessary to prevent systemic risks in the financial system.

“This act, as it reads right now, gives this regulator unbelievable powers that no other regulator in the world has,” HOOPP CEO Jim Keohane said to the Globe and Mail. “It can prohibit or restrict any business activities that we undertake. It could force us not to trade securities. The regulator can at its discretion order us to do anything it deems necessary to address systemic risk. It’s completely open-ended.”

As part of two new pieces of legislation published in September, the act would create a new federal-provincial securities regulator, and create a separate new national systemic risk oversight regime to be managed by the regulator. Public comments on both acts were due in December, but the legislation is still under review.

If a company’s activities could pose a systemic risk to the markets, the regulator would have powers to designate an organization as “systemically important.” The decision would be made based on a variety of criteria, including a company’s size, volume of trading it conducts, the extent of its “interdependencies” in the market and the complexity of its business.

The regulator would have the authority to require systemically important organizations to abandon proposed mergers, increase capital or financial resources, implement wind-up plans, terminate business activities or “to do anything else that is necessary to address the risk.”

Breaches of the act carry fines up to $25-million.

Keohane fears the regulator’s proposed powers are too broad.

“The way this reads right now, they could designate us as a capital market intermediary and tell us we have to buy assets off a bank,” he said. “This thing says they can tell us to do anything.”

COMMENTS

  • by Harley Lockhart 2015-01-14 1:31:37 PM

    I have great concern about the unfettered power of regulators. They have no real accountability to anyone even when their decisions and/or rules create disruption, even significant damage, to not only the industries they regulate, but the national economy as a whole.

    “The way this reads right now, they could designate us as a capital market intermediary and tell us we have to buy assets off a bank,”. This is indeed a scary potential that could be used inappropriately, for example, to prop up the share value of a threatened entity and rescue them from irresponsible management decisions.

    Nevertheless, systemic risk cannot be ignored by any responsible government. We already have experienced, with international banks, the problem of entities "to big to fail". The aforementioned quote indicates the potential for the regulator to choose which of their governed institutions to protect/support. This might be acceptable if there was any hope decisions would be made without outside influence (fat chance). There must be some other method to protect against systemic risk that does not impose unacceptable risk to the regulated entities.

  • by Ken MacCoy, CHS 2015-01-14 2:02:08 PM

    The above comment by Harley: 'Hit's the nail on the head'. Regulation that promotes consumer protection and accountability ... be it from pension funds or individual advisors is a good thing. However, when the regulators themselves are neither accountable nor have restricted powers .... that is an 'accident waiting for a place to happen'.