No easy task as federal government tries to overhaul rules that govern businesses
About 131,000 regulations set limits on everything from food labels to pipelines
OTTAWA When Michael Katchen launched Wealthsimple, a low-cost investment fund 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 its 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 tonne 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, the feds promised to begin cutting through that tangle as part of its fall economic statement, where 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 how 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.
A report by the Canadian Chamber of Commerce in March 2018 found that 131,754 federal regulations are 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,” it 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 things like the size of their components or their field of view. The change seems small on its face, but could steeply reduce costs for auto parts 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.”
The regulatory burdens also apply to trade over provincial borders. If a company produces and jars its pickles in Canada, but uses too much American ingredients 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 said on Wednesday that it was simply “impossible to know ” if 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.