OSFI honcho Jeremy Rudin made a speech today at the Life Insurance Invitational Forum:
We are also consulting with you in the international arena. We have a Canadian, Frank Swedlove of the CLHIA, who recently completed his term as inaugural chair of the Global Federation of Insurance Associations. The federation is deeply engaged with the International Association of Insurance Supervisors – the IAIS, of which OSFI is a member.
OSFI has been promoting reforms in the organization. We are happy to see the IAIS adopting the practices and governance structure of other bodies that support the Financial Stability Board. The IAIS is improving its planning, organizational efficiency, focus, and governance. It is developing a formal, robust and transparent process to streamline stakeholder consultations. Given the extremely important assignments the IAIS has undertaken for the FSB, this is good news.
As part of these reforms, the Observer category at the IAIS is being eliminated. I know that some insurers are concerned that this reform will reduce transparency at the IAIS.
I certainly agree that the IAIS needs to keep a window open for the industry to contribute to its deliberations. I am very supportive of the new IAIS consultative mechanism. It is similar to OSFI’s own approach to consultations, so I am confident it will be satisfactory.
…
If we at OSFI think that the eventual international capital standard for insurance companies is too low for Canadian purposes, we will set a higher bar. My successors may have cause to thank me for doing so, just as I am grateful to my predecessors who set a higher bar for banks.On the other hand, when we judge that there is little or no value in exceeding an international minimum, we stay quite close to our agreements with global counterparts. Sometimes, that means bucking the trend, as with our decisions on preferred share issues and leverage limits for banks.
There have been six Canadian observers at the IAIS (FICONET was originally given two lines. Corrected 2014-11-14):
- · Assuris
- · Canadian Life & Health Insurance Association Inc.
- . FICONET (International Financial Consumer Protection Network)
- · Insurance Bureau of Canada
- · Manulife Financial
- · Sun Life Financial
The Global Federation of Insurance Associations says:
We understand that the growth of the IAIS means that the IAIS needs to evaluate whether the Observership role is functioning as intended. However, we do not understand what particular problems this proposed cancellation of Observership status is intended to solve. Rather, we believe this will make the IAIS standards development process less transparent overall, which we do not believe is the intention.
…
We urge the IAIS to reconsider its proposed decision to generally exclude stakeholders from IAIS meetings. It should be best practice to always invite stakeholders to meetings, unless there are good reasons to exclude them, rather than the other way around. Exclusion of stakeholders from meetings should only be acceptable in a clearly prescribed set of circumstances such as, but not limited to, IAIS internal matters, budget issues, issues that concern only one stakeholder, etc.
NAIC is also opposed:
At the International Association of Insurance Supervisors (IAIS) Annual General Meeting on October 25, members voted on observer membership status for non-member stakeholders. The vote, which took place in closed session, amended IAIS bylaws to end the observer membership status, which included participation in some IAIS meetings, in favor of creating new stakeholder consultation procedures.
“I am extremely disappointed in the outcome of Saturday’s vote to end observer status at the IAIS,” said Adam Hamm, NAIC President and North Dakota Insurance Commissioner. “Observers run the range of consumer advocates, insurance experts, and industry representatives – all of whom have critical input to share on the real-world consequences of decisions made by regulators. Shutting them out of the official process in favor of ‘invite only’ participation deprives IAIS members and stakeholders alike and could diminish the credibility of decisions made at the IAIS.”
… as are American insurers:
For U.S. insurance organizations, the proposed change slated to go into effect on Jan. 1, 2015, couldn’t come at a worse time. In addition to the common supervisory framework, the group also is considering capital standards as well as how to designate and supervise global systemically important insurers.
How IAIS deals with these issues could significantly affect U.S. insurers.
U.S. insurer groups fear the proposed meeting participation changes would harm transparency, and filed comments opposing the change during a comment period that ended earlier this month.
“We have been a longtime observer of the IAIS and we think that transparency is critical,” said Robert Neill, senior director of international and government affairs at the Washington-based American Council of Life Insurers. “The U.S. government system is built on a transparent process, and we’re concerned about any departure from transparency.”
Steve Simchak, director of international affairs at the Washington-based American Insurance Association, called the proposal “very concerning.”
“The work the IAIS is doing now could have major impact on insurance regulation here in the U.S. and also on U.S. insurance groups that operate internationally,” Mr. Simchak said. “We think as the work of the IAIS becomes more important, that’s a cause for more transparency and not less.”
… as does a European group:
We note the efforts and welcome the commitment to enhance the efficiency and effectiveness of IAIS activities and decision-making processes. After all, many AMICE members contribute (indirectly, through the financing arrangements for their national supervisors) to the financing of the IAIS. Having said this, we wonder, however, why the abolition of observer status is being seen as an important step towards securing efficiency and effectiveness. We believe that in a clearly and transparently governed policymaking structure neither the independence nor the efficiency of the IAIS is necessarily compromised by the existence and involvement of observers.
However, since OSFI is a grossly incompetent organization with negligible analytical prowess, it is not surprising that they wish to make their decisions in secret. Assiduous Readers will also remember that OSFI’s consultation process is laughable.
Speaking of speeches, there was a most interesting presentation by Carolyn Wilkins of the Bank of Canada titled Money in a Digital World:
E-money is still a wallflower in developed countries where many people have bank accounts, although this could change quickly. Today it is more popular in countries where relatively fewer people have access to banking services.4 An example of this is Kenya, where many people use e-money called M-Pesa. M-Pesa is backed by the issuer and redeemable in the Kenyan shilling. It gives people a low-cost way to transfer money using their mobile phones. M-Pesa is used in some 2 million transactions each day, worth about $5 billion annually. That’s nearly 20 per cent of Kenya’s GDP.
Limited access to banks is not always the main motivator for the adoption of e-money. The Octopus card, in Hong Kong, was originally designed to pay for public transit. It proved so convenient that it is now used for over 13 million transactions each day – from transit to coffee to a pair of jeans.
…
E-money is not big enough to pose material risk to financial stability in Canada at this time. That said, money and payments technology is progressing in leaps and bounds, and so the Bank of Canada is watching developments closely. The federal government also is undertaking a review of payment systems in Canada to ensure that the degree of regulation of payment systems and methods is appropriate. This review has resulted in the Bank of Canada having increased responsibility to oversee payment systems of economic and systemic importance.There is little doubt that these innovations have some benefits. They give us more choice about how we make purchases, and can reduce the cost of certain transactions. Think about online purchases of pictures or songs. The transaction costs of traditional payment methods, such as credit cards, make these small-value purchases expensive. A $1 transaction could be done for no fee using Bitcoin while it could cost over 30 cents in fees using some merchant credit cards. E-money is also useful for sending money across borders. Traditional financial institutions offer these services, called remittances, but the fees can be as much as 10-12 per cent for small transactions. So, e-money has some benefits in certain economies, especially when cash is not a viable option.
…
Some people have wondered whether widespread use of e-money could impair the ability of the central bank to conduct monetary policy. This is very unlikely because Canadian interest rates would still matter.13 Whether they use e-money or cash, as long as people and businesses pay bills and borrow in Canadian dollars, the Bank of Canada would still be able to achieve its monetary policy objective. When it comes to cryptocurrencies, however, the situation is different. In the unlikely situation in which cryptocurrencies were used broadly, a significant proportion of economic transactions would not be denominated in Canadian dollars. This would reduce the Bank’s ability to influence macroeconomic activity through Canadian interest rates. Let me be clear, we are nowhere near this point today. But if we were, it would be even more important to determine whether issuing e-money is a role that should be done by the central bank.
And the Bank of Canada Review – Autumn 2014 has been published, with articles:
- Recent Developments in Experimental Macroeconomics
- Should Forward Guidance Be Backward-Looking?
- Spillover Effects of Quantitative Easing on Emerging-Market Economies
- Firm Strategy, Competitiveness and Productivity: The Case for Canada
- The Use of Financial Derivatives by Canadian Firms
It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 6bp, FixedResets up 15bp and DeemedRetractibles gaining 1bp. Volatility was average. Volume was low.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2115 % | 2,550.8 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.2115 % | 4,038.4 |
| Floater | 2.95 % | 3.04 % | 64,885 | 19.58 | 4 | 0.2115 % | 2,711.7 |
| OpRet | 4.02 % | -0.55 % | 101,027 | 0.08 | 1 | 0.1965 % | 2,748.7 |
| SplitShare | 4.24 % | 3.74 % | 53,159 | 3.76 | 5 | 0.1179 % | 3,192.6 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1965 % | 2,513.4 |
| Perpetual-Premium | 5.44 % | -5.56 % | 65,109 | 0.08 | 19 | 0.0678 % | 2,483.3 |
| Perpetual-Discount | 5.15 % | 5.04 % | 105,374 | 15.31 | 16 | -0.0557 % | 2,655.5 |
| FixedReset | 4.17 % | 3.55 % | 176,872 | 4.52 | 74 | 0.1521 % | 2,586.7 |
| Deemed-Retractible | 4.97 % | 1.50 % | 99,520 | 0.13 | 41 | 0.0106 % | 2,599.8 |
| FloatingReset | 2.55 % | 0.48 % | 64,553 | 0.16 | 6 | 0.0588 % | 2,552.8 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| TRP.PR.B | FixedReset | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-13 Maturity Price : 18.76 Evaluated at bid price : 18.76 Bid-YTW : 3.86 % |
| BNS.PR.P | FixedReset | 1.14 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2018-04-25 Maturity Price : 25.00 Evaluated at bid price : 25.78 Bid-YTW : 2.44 % |
| POW.PR.G | Perpetual-Premium | 1.28 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2017-04-15 Maturity Price : 26.00 Evaluated at bid price : 26.80 Bid-YTW : 4.24 % |
| IAG.PR.A | Deemed-Retractible | 1.66 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.95 Bid-YTW : 5.24 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PR.N | FixedReset | 96,140 | Nesbitt crossed blocks of 50,000 and 28,000, both at 25.00. YTW SCENARIO Maturity Type : Call Maturity Date : 2018-12-01 Maturity Price : 25.00 Evaluated at bid price : 24.98 Bid-YTW : 3.99 % |
| FTS.PR.M | FixedReset | 94,618 | RBC crossed 40,000 at 25.55; Scotia crossed 50,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-01 Maturity Price : 25.00 Evaluated at bid price : 25.56 Bid-YTW : 3.76 % |
| FTS.PR.H | FixedReset | 64,861 | RBC crossed 50,000 at 20.45. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2044-11-13 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 3.80 % |
| SLF.PR.G | FixedReset | 60,200 | RBC crossed 47,000 at 21.54. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.50 Bid-YTW : 4.87 % |
| GWO.PR.N | FixedReset | 51,898 | RBC crossed 50,000 at 21.75. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.50 Bid-YTW : 4.78 % |
| MFC.PR.M | FixedReset | 34,029 | Scotia crossed 20,000 at 25.50. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-12-19 Maturity Price : 25.00 Evaluated at bid price : 25.49 Bid-YTW : 3.70 % |
| There were 24 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BNS.PR.P | FixedReset | Quote: 25.78 – 26.55 Spot Rate : 0.7700 Average : 0.5138 YTW SCENARIO |
| GWO.PR.Q | Deemed-Retractible | Quote: 25.13 – 25.59 Spot Rate : 0.4600 Average : 0.2992 YTW SCENARIO |
| RY.PR.L | FixedReset | Quote: 26.41 – 26.89 Spot Rate : 0.4800 Average : 0.3444 YTW SCENARIO |
| GWO.PR.N | FixedReset | Quote: 21.50 – 21.80 Spot Rate : 0.3000 Average : 0.2067 YTW SCENARIO |
| TRP.PR.B | FixedReset | Quote: 18.76 – 19.10 Spot Rate : 0.3400 Average : 0.2471 YTW SCENARIO |
| FTS.PR.K | FixedReset | Quote: 25.51 – 25.85 Spot Rate : 0.3400 Average : 0.2586 YTW SCENARIO |
I’m wondering if constant “observation” of regulatory deliberations by the regulated differs much from regulatory capture. Is it about “transparency” or is it about “lobbying like mad” in real time?
Does the SEC allow brokers to “observe” its deliberations and would it be better served if it did?
It seems to me there can be plenty of time for comment periods without the lobbyists getting an inside track on the proposals themselves.
It is indeed possible that Observer status could be used as part of a regulatory capture process; the company in question could be ensuring that the person they’d bought did indeed argue and vote in accordance with instructions.
On the other hand, Observer status was also available to “consumer advocates” and was taken up by a few of them; it will be difficult to effect egregious regulatory capture when being observed by groups with wildly varying interests and opinions.
It has been found in the West that allowing as many observers as possible decreases the potential for corruption; we can all attend parliament and read Hansard; we can attend trials, listen to the evidence ourselves and know which judge is making what decision; we can do all sorts of things and the fact that these things can be done decreases the necessity of actually doing them.
Comment periods are fine and formal comments are a wonderful feature of the system, but like so much else the devil is in the details. OSFI, for instance, is a sleazy organization that does not even publish submitted comments; the fact that OSFI supports and praises the elimination of observers is more of a negative than would otherwise be the case.
Securities regulators in Canada are marginally better.