Senate committee calls for review of Canada's hedge fund industry

Date: Thursday, June 8, 2006
Author: Steven Chase, Globeandmail.com

OTTAWA -- Ottawa should press the provinces to consent to a single securities regulator by mid-2007 and appoint an investigator to probe the booming hedge fund industry, a Senate committee urged yesterday. "We . . . are struck by what appears to be a relative lack of regulation in this area," the Senate banking, trade and commerce committee said of the hedge fund sector. "We are particularly concerned about the increased involvement of the 'retail market' -- or general investing public -- in purchasing . . . hedge funds which, historically, were marketed to high-net-worth and institutional investors."

The recommendations were two of 20 calls for action by the Senate banking, commerce and trade committee in a report it released yesterday called Consumer Protection in the Financial Services Sector: The Unfinished Agenda.

The committee, chaired by Liberal Senator Jerry Grafstein, called for Ottawa to launch fresh efforts to establish a common securities regulator.

"Forty years have passed since discussions about a single securities regulator began and Canada is not appreciably closer today to meeting that goal," the report said.

Senators recommended that Ottawa invite provinces and territories and Canadian securities commissions to meet with a view to establishing a common regulator by June 30, 2007, located in Canada's National Capital Region.

Finance Minister Jim Flaherty signalled in April that pushing for one Canadian securities regulator will be an important goal for him following the 2006 budget, which passed the Commons yesterday.

The Senators also called on Ottawa to study the growing payday loan market. "[We were] struck by the extent to which alternative financial service providers -- and the volume of business conducted by them -- appear to be growing. We view their growth as somewhat alarming, since we do not believe that they are adequately regulated," the report said.

Senators also want Ottawa to appoint a financial services ombudsperson as a single point of contact for all Canadian consumers.