Red-tape headache? Blame the largely invisible, below-the-surface rules and guidelines that govern the lives of Canadians and their businesses
OTTAWA — When Michael Katchen launched Wealthsimple, a low-cost investment service geared toward young people, one thing held him back: a rule under Ontario’s provincial regulator that requires managers to meet face-to-face with clients before investing their money.
That seemingly innocuous regulation was a big problem for Katchen, who wanted to create a nimbler, faster and cheaper platform for investors. He spent six months in negotiations with the Ontario Securities Commission and other regulatory bodies to get an exemption, which effectively allowed the firm to call would-be clients over the phone rather than meet them in person. That in turn lowered costs and processing times.
Soon after winning that exemption, though, he spent another six months in negotiations with the very same regulators — this time for an exemption that would allow the company to receive consent from investors online, rather than over the phone.
“It was a massive risk and stress for our business,” said Katchen, who said the process wasted valuable time and energy. “It slowed us down a ton when we were trying to get going.”
Wealthsimple managed to succeed despite the regulatory drag, raising $165 million in funding since 2014. It now manages $2.5 billion in assets for more than 100,000 people.
The regulatory headache faced by Katchen points to a deeper problem in Canada’s regulatory regime — the largely invisible, below-the-surface rules and guidelines that govern the lives of Canadians and the businesses they operate. According to the federal government, Canada has some 131,000 rules and regulations at the federal level alone, setting tight restrictions over everything from food labelling to the widths of car tires to regulatory reviews for major projects like oil pipelines.
And those regulations have weighed on businesses for years, prompting industry to call for an overhaul. On Wednesday, Ottawa promised to begin cutting through that regulatory tangle as part of its fall economic statement, in which it said regulators could soon have to consider business competitiveness, efficiency, cost and economic growth when crafting new regulations.
Those efforts, if properly executed, could mark a fundamental shift in the way regulations are crafted, and could even address snags that have plagued industry in recent years. Business executives say clumsy regulations have stalled major pipeline projects and limited inter-provincial trade.
“When I speak to business leaders, particularly in highly regulated industries, they tell me that regulatory competitiveness is as important — and often more important — than pure tax competitiveness,” said Scott Brison, the president of the Treasury Board, which has been undertaking efforts to streamline Canada’s regulatory system.
“(Business leaders) tell me that regulatory
competitiveness is as important — and
often more important — than pure tax
competitiveness”
– Scott Brison, Treasury Board president
A report by the Canadian Chamber of Commerce in March 2018 found said there are 131,754 federal regulations imposed on businesses in Canada, which had grown sharply from 2014, when there were 129,860.
“This escalation has reduced the productivity and competitiveness of Canadian firms while making Canada less attractive to foreign investment,” the report said.
Making matters worse, the value of some of those government regulations are sometimes lower than the overall cost of administration. A report by the Treasury Board in December 2017 found that various amendments to existing Employment Insurance regulations, for example, cost $2.252 billion, compared with a deemed “value” of $2.204 billion — amounting to an overall loss of $47.7 million. Regulations around a protection order for the Western Chorus Frog, administered by Environment and Climate Change Canada, amounted to a loss of $8.4 million, the report said.
Brison has focused much of his efforts on trying to correct the ever-growing thicket of government regulations, including a so-called “one-for-one” policy that ensures any new regulation is matched by the elimination of another.
He also joined efforts to start the Regulatory Cooperation Council, which aims to remove trade barriers between Canada and the U.S. by cutting or streamlining regulations.
The group in 2016 put forward streamlined regulations around backup cameras for cars, which essentially set uniform specs for such things as the size of their components or their field of view. The change seems small on its face, but could steeply reduce costs for autoparts manufacturers, who could then make cameras of a fixed size rather than retooling their facilities to manufacture non-identical parts. The council also agreed to terms that streamlined the sale of Canadian sunscreen into the U.S., which had for years been quarantined at the border due to Canada’s classification of SPF as a drug.
Brison said the changes were made in an attempt to strengthen the Canadian economy, and said that “unshackling business from unnecessary regulatory burden is a smart way to accomplish that.”
“This escalation (of regulations) has reduced the productivity
and competitiveness of Canadian firms while making Canada
less attractive to foreign investment”
– Auditor General’s report
The regulatory burdens also apply to trade over provincial borders. If a company produces and jars its pickles in Canada, but uses too much of an American ingredient in its vinegar, for example, the product could be essentially considered “un-Canadian” under certain trade provisions, which makes it more difficult to sell in other provinces.
There has been skepticism by industry that government will properly execute on its plan to account for business or efficiency concerns when crafting regulations. A representative for the Canadian Association of Petroleum Producers told the National Post on Wednesday that it was simply “impossible to know” whether the efforts would be successful.
Brison said so far they have eliminated just 450 regulatory guidelines — well below the growth in the number of regulations between 2014 and 2015 alone.
Moreover, government has cited “economic growth” as part of its considerations for regulations as far back as 1994, when it set guidelines under the Federal Regulatory Policy. By 2007, then under the Cabinet Directive on Streamlining Regulation, Ottawa was stipulating that new regulations should “promote a fair and competitive market economy that encourages entrepreneurship, investment, and innovation.”
Such regulatory reforms are likely to take a lot of time. Since Katchen launched Wealthsimple in 2014, the regulations around face-to-face client meetings have yet to be updated. Another entrepreneur in his position would need to negotiate a similar exemption.
Even so, he said he is holding out hope for Ottawa’s latest efforts — as well as similar efforts laid out in Ontario — but warns that the regulatory review will mark a massive undertaking.
“It’s not going to be an easy thing,” he said. “It has to be more than lip service, and there has to be a real commitment. There has to be some hard decisions made to enable that kind of change.”
