Canadian financial regulators are hampered by the gridlock that comes with fragmentation. Independent oversight could promote new ways of thinking
Ian Russell and Edward Waitzer -
As Canadian securities regulators become more fragmented, the tendency to "lock-in" to policy choices based on previous decisions has increased.
This tendency is natural where individuals working in teams are often less equipped to act on key information than when there is more accountability. The gridlock is exacerbated by a complex and rapidly evolving market environment, contributing to oversimplification and "tunnel vision." Many of us tend to see the world in a particular way when it serves our self-interest to do so. It's easy to ignore "inconvenient" facts or analysis to promote a desired outcome. And yet in today's world, "normal" paradigms rarely hold up.
Likewise, there is a proclivity for "conservatism bias," where information is interpreted to confirm prior expectations. There is also perceived safety in the status quo, even when available evidence suggests a different course of action. This is particularly so when consensus is difficult to achieve or there is much uncertainty over the consequences of a particular action.
Each of these biases are a disincentive to engage in independent, analytical thought. Efforts are made to avoid such conduct through accountability mechanisms (e.g., review by third parties, independent auditing). But these mechanisms no longer work as effectively as they should with Canadian securities regulators.
The challenge is particularly acute with respect to the reform of existing rules, where inertia becomes an obstacle to the adjustments required to ensure competitive and well-functioning markets and to address the inevitable, unintended consequences of regulation.