October 31st, 2017

The regulatory framework: Protecting Canadian investors

The regulatory framework that binds a financial system is hardly given a second thought by most investors. It works in the background, reliably doing its job. You really don’t notice it unless it breaks down. If it does, only then do you appreciate how vital it is to your life. Fortunately, the Canadian system is widely regarded as among the safest and best-regulated in the world.

In Canada, the regulatory framework helps to achieve three goals:

  • Protect investors: Investors can be vulnerable to financial fraud and manipulative sales practices. To address these concerns, regulators oversee and regularly audit the activities of industry registrants. They also mandate greater transparency and disclosure of information and encourage investors to become better educated about their investment options and associated risks.
  • Foster confidence: All market participants need to feel comfortable conducting transactions in the capital markets. They need to know that contracts will be upheld, payments will arrive on time, and that all parties will conduct themselves in a fair manner. Confidence is vital for a healthy financial system, and—to a large degree—the economy.
  • Create stability: Systemic risk threatens entire financial systems. With greater interconnectedness within economies and between global markets, creating market stability requires taking on a more macro or global view to identify and address this risk.

Strengthening the regulatory framework

Regulation touches every aspect of the financial services industry. As an investor or industry employee, you will be both protected by and expected to comply with industry regulations. For example, if you work for a mutual fund distributor, the Mutual Fund Dealers Association of Canada (MFDA) regulates your operations, standards of practice and conduct. For investors, the MFDA’s Investor Protection Corporation (IPC) manages a fund that protects investor assets (up to $1 million) held by a member firm in the event the member firm becomes insolvent.

Financial services firms are emphasizing regulatory best practices more than ever before. This is a result of the financial crisis of 2008.  The vulnerability of the U.S. regulatory regime at the time helped trigger the biggest financial panic since the stock market crash of 1929.

Compliance is a focus

As with the Great Depression, the period after the financial crisis of 2008 was accompanied by a huge wave of regulatory changes. Today, rules are stricter and federal and provincial oversight is tighter. Companies are being more vigilant and putting more resources into their compliance departments. It’s no surprise that compliance is one of the fast-growing areas within the financial services industry today.

If you intend to chart a career in financial services, having a strong comprehension of the regulatory framework is a must. Look to IFSE’s suite of courses or continuing education programs to sharpen your regulatory knowledge.