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March 25, 2015
Three pension giants unite to oppose new regulator

Three of Ontario’s largest public sector pension plans say they will oppose proposals to create a national securities regulator.

The Healthcare of Ontario Pension Plan (HOOPP), the Ontario Municipal Employees Retirement System (OMERS) and the Ontario Teachers’ Pension Plan (OTPP) have issued a joint statement to federal Finance Minister Joe Oliver urging him to remove pensions from the Capital Markets Stability Act, the draft legislation creating a single securities regulator for the country.

The three pension plans represent more than 900,000 active and retired plan members and manage more than
$150 billion in assets.

According to HOOPP Chief Executive Officer Jim Keohane, the proposed law will give the new regulator unprecedented powers, including the power to stop pensions from trading securities.

“This act gives the regulator unbelievable powers,” he says.  “It can 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.”

If adopted, the new law will allow the national regulator to designate an organization as “systemically important.”  If the regulator feels the organization’s activities may pose a systemic risk to markets, it could force the organization to sell securities, increase capital, abandon mergers, wind-up operations or terminate business activities or “do anything else necessary to address the risk.”  

Violators of the act could face fines of up to $25 million.

Such powers could result in pension plans being forced to buy or sell assets to prop-up failing financial institutions or provide liquidity to markets during financial crises, Mr. Keohane warns.

“This thing says they can tell us to do anything,” he says.

The legislation would apply to key organizations involved in Canadian capital markets including pension plans, stock exchanges, clearing houses, credit rating agencies, brokerage firms, investment funds and others.

According to the HOOPP executive, the nature of pension plans should exclude them from the proposed law.  Since their primary purpose is to pay benefits to members, pensions already operate under strict and highly conservative investment regulations.

A national regulator should be more concerned about the organizations that issue risky investments such as subprime loans and non-bank commercial paper, not the organizations that hold them in good faith, he says.

“We believe that there is no evidence showing that pension entities are potential sources of systemic risk” he stressed.  “On the contrary, pensions are typically seen as buffers against systemic risk.  Those entities that could cause systemic instability should be watched.  But we’re not one of them”

Today, Canada’s securities regulations are controlled by the provinces.  Canada is the only developed country that does not have a unified regulatory system to monitor or control its capital markets.

Ontario, New Brunswick, Saskatchewan and British Columbia support the plan to develop a national securities regulator.  Quebec and Alberta oppose the plan.

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