When regulation fails New Brunswick

For many people, the idea of government regulation is inherently bad, conjuring up images of useless red tape, bumptious bureaucrats and endless paper shuffling. But when regulations fail, the answer seems to be that we need more regulations.

But deregulation has its own problems. The recent global economic meltdown finds its source in the deregulation of American markets, which allowed the creation of sub-prime mortgages and other sketchy “financial instruments.” Deregulation, combined with poor government oversight, resulted in the collapse of a major Wall Street bank, which triggered the collapse of other over-extended financial institutions around the globe.

If Canada has escaped the worst of this meltdown, it is because the chartered banks and investment dealers in our country are well regulated and government oversight is strict. This would be an example of “smart regulation”, a set of rules that are affordable, effective and enforced.

The most difficult challenge for the Government of New Brunswick is enforcing the rules that it has set for itself through regulation. There are many areas of regulation is not being enforced by Government, either due to a lack of resources or a lack of political will. This is not only causing Government to lose millions in potential revenue, this lax attitude towards regulation has already cost New Brunswickers tens of millions of dollars and has the potential to cost millions more.

There are three outstanding New Brunswick examples where the failure of Government to enforce its own regulation has failed New Brunswickers.

The first example has to do with the oversight of private pension plans. When the St. Anne Nackawic Pulp Company unexpectedly declared bankruptcy in 2004, the pension plan set up for employees at the mill was seriously under-funded. This caused great distress for many employees and retirees who were counting on a fully funded pension plan for their retirement.

Although many factors contributed to the under-funding of the plan, the Provincial Government failed in its responsibility to provide the necessary regulatory oversight to this pension plan, mostly due to leaving staff positions unfilled. Further, it failed to act in accordance with its own regulations when the pension plan was found in an under-funded situation in the years prior to the closure of the plant.

The second example is with regard to La Caisse Populaire du Shippigan (LCPS). In this infamous example, the LCPS did everything in its power to prevent the oversight and good regulation of this community financial institution. The Auditor-General’s investigation into this matter shows how the LCPS defied the scrutiny of its immediate regulators and how the Provincial Government neglected its responsibility to act promptly when the alarm was finally raised. As the Auditor-General stated in his report: “In hindsight, there were many opportunities where, had rigorous regulatory intervention occurred, the eventual losses incurred at LCPS could have been avoided or at least minimized.”

To salvage the LCPS, and to provide stability to the provincial credit union system, provincial taxpayers had to provide $55 million in funding – a stiff price to pay for a poorly resourced provincial regulator. Clearly, the Government of the day failed us all when it failed to insist on the accountability it had set out in regulation.

The third example of regulatory neglect is happening as you are reading this article, the failure of the Provincial Government to uphold its responsibilities in regulating the poultry market in New Brunswick. In this instance, the Provincial Government is trying to wash its hands of its responsibility to ensure that the poultry market is managed to the benefit of producers, processors and consumers.

This dispute has already cost jobs in the Madawaska area and a failure to intervene has implications for the poultry sector across Canada. However, rather than fulfilling its regulatory responsibilities, the word from the Government is that this is just a dispute between two private sector companies.

Unfortunately, this was the same kind of answer given when the St. Anne Nackawic pension plan was discovered to be in an under-funded position or when LCPS was evading the oversight of its regulators. “It’s not our responsibility,” claims the Government. However, when the law states that the Province is responsible to regulate a sector, whether it is pensions, credit unions or agriculture, you cannot absolve yourself of these duties so simply.

New Brunswickers are deserving of regulations that are affordable, effective and enforced. We all end up paying the price when the Provincial Government neglects its responsibilities.

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Originally published in the Telegraph Jornal May 13, 2011