No one (in Ottawa) would listen!

The strange obsession with a national securities commission

Of all the convoluted arguments marshaled to support the case for a centralized, national securities commission, none is more shop-worn than pointing to the shining example of the American Securities and Exchange Commission (SEC).

Clearly, it is asserted with a booming voice, modern financial markets require tightly coordinated regulations and enforcement, which only a single, centralized agency can provide. Canada, they continue, is sadly unique in the world with its Province-based and decentralized regulatory system. Canada is also a rare country to have weathered the financial hurricane of 2008 relatively unscathed!

Superior coordination and enforcement??

If anyone persists in claiming superior virtues for a centralized regulatory system à la SEC, let them read (actually force them to read) Harry Markopolos’s true financial thriller “No one would listen” (Wiley, 2010). Markopolos is, of course, the whistle-blower who vainly tried to get the SEC to investigate Bernie Madoff from 2000 until the eventual collapse of his Ponzi scheme in December 2008 as a result not of any action taken by the SEC but of the stock market crash.

Markopolos tells a frightening tale of incompetence, indifference and arrogance at the SEC. What’s most relevant to our federal attempt to install a centralized regulator with regional offices is the impotence and frustration of the SEC’s Boston office, to which Markopolos reported his findings on Madoff’s scheme.

Markopolos writes: “The New England region extended south only as far as Greenwich, Connecticut. Even if [the Boston office] had wanted to, it would not have been permitted to send an investigative team into New York City. Once you crossed into New York State, you had to deal with the New York regional office. And […] the two offices were extremely competitive; there was not a lot of respect in either office for the other one. […] the chances of the New York office warmly embracing a case handed to them by the Boston office were somewhat limited”

So much for the benefits of superior coordination and seamless operations that will flow naturally from a centralized Canadian securities commission!

Anyone who has studied organizations knows that branches, regional offices, divisions of the same organization are not more likely to cooperate with each other than with outside entities.

Indeed, a study sponsored by the Hockin Expert Panel to assess the causes of the ABCP issue and whether a centralized regulatory system would have prevented the problem states: The ABCP crisis turns out to be a poor test with respect to arguments in favor of greater consolidation of regulatory responsibility… The case for consolidation would be strengthened if there is evidence that communication between different parts of a single agency proves more effective than communication among agencies. (Chant, 2008, p.46) […] Read more