The world of capital and investing is exciting, but complicated. New Brunswick’s Financial and Consumer Services Commission (FCNB) is the watchdog that wants to make sure you don’t get burned.
FCNB is responsible for enforcing provincial legislation that regulates securities, insurance, pensions, credit unions, trust and loan companies, co-operatives and other consumer legislation. You’ve probably seen their ads if you’ve been to a Service New Brunswick branch or watched local TV. You may also have heard them mentioned in the news when there’s a new phone scam going around.
But the organization goes beyond consumer advocacy (though it’s a big part of what they do). They create and enforce regulations that companies and investors must abide by when it comes to capital and securities.
“Part of our mandate specifically under the securities act is capital market development. When you look at what makes up the capital market, it’s not just publicly traded companies,” says FCNB CEO Rick Hancox. “It’s everything from companies that are coming out of commercialization and [research and development] all the way through to your big companies.”
The business world is constantly changing and innovating and the rules and regulations need to reflect those changes. Hancox says it’s a fine balance to protect but not stifle growth.
“One of the biggest challenges of a regulator is how to keep up with changes in the industry. New products, new services. You have to be able to do it in a responsive manner,” he says.
Another part of the FCNB mandate is educating not just consumers and investors, but businesses as well.
“When people think about education, they think about consumer education and investor education, and there’s no doubt that’s a very important piece,” Hancox says. “But our education expands to industry because industry needs to understand what the rules are.”
Regulations and “red tape” are often viewed as a hindrance to business. A lot of times they are. But Hancox says that some regulation is needed to create a market people want to do business in.
“It really comes down to having confidence in the financial markets. If you’re a consumer and you have the view that nobody’s overseeing or looking out for the consumer and there’s nobody there to set out the tent pegs to say ‘ok you play in the arena, but don’t go over there’ then you’re left with the opinion that folks on the other side can do whatever they want,” he says.
“The challenge is by far the majority of companies will do the right thing. But not everybody does the right thing. So what happens when somebody takes advantage and plays outside the rules. Where’s your recourse?”
Where and how New Brunswick startups and businesses get their capital is something FCNB studies very closely and compiles an annual report around. Hancox says the province has made good progress creating the resources for startups and companies to grow and get funding. But now the challenge is to attract more private investors to the province.
“The folks who provide capital like to be close and one of New Brunswick’s challenges is its location from that perspective,” Hancox says. “When you look at the centres of venture capital, you’re looking at Boston, you’re looking at Los Angeles, Toronto and so on. So the question is, ‘how easy is it to get to where I’m investing?’ So things like air service, you want to make sure people can get in and out to see what their investment is doing.”
None of New Brunswick’s airports offer direct flights to any of these cities (except Toronto). Then there is also the challenge of building up enough companies poised for growth that outside investors would be interested.
“You need a critical mass too,” Hancox says. “If I’m going to invest in New Brunswick it’s not the one lonesome thing out in the wilderness.”
But Hancox says there is also an opportunity to create more investors in the province.
“I think another challenge is helping New Brunswickers understand the opportunities that are here to consider … I think there is a lot of opportunity for the development of more angel networks. I think there’s an opportunity for developing different options for investing,” he says. “One of the more recent ones is the Community Economic Development Corporation that just started in New Brunswick. These are things that are coming up that are helping New Brunswickers invest in New Brunswick.”
One of the biggest investors in New Brunswick companies is government and government agencies. For example, the New Brunswick Innovation Foundation is the second most active government fund in the country. Some argue government investment distorts the capital market, but Hancox doesn’t think so. He says when government invests directly in companies, they should do so with the same expectations as a private investor and returns could be used to invest in other companies. Often when government invests, it’s not always equity, it can be in the form of things like grants, repayable loans and employee tax credits.
“When government invests in companies, I think they should consider doing it on the same expectations as private investors. I’m investing in the expectation of return and I think we probably need to think more about that particular approach to how [government] invests in companies.”
FCNB is in charge of regulating securities in the province right now, but it might not for much longer. The federal government is working on establishing a joint securities regulator for the provinces (the ones that choose to participate, anyway). Right now there are six provinces and territories on board and New Brunswick is one of them. Hancox says once that’s created, FCNB will simply remove securities from its mandate.
“If that comes into play, basically the part of our organization that deals with securities will move off and become a part of the national regulator, a different organization located here in New Brunswick,” he says. “The remaining part of [FCNB] will continue to regulate the remaining part of our responsibility which will be pensions, insurance, financial institutions, and a whole bunch of consumer affairs.”
Until then, Hancox says FCNB will continue to do its best to stay on top of the best regulatory practices for securities.
“I think as an organization we’re quite innovative and creative and I think when you look at our website, when you look at some of our educational materials and initiatives … We’re really trying to be effective in those areas and creative in how we approach those things,” he says.
“There’s an old adage that says ‘bad regulation makes bad compliance,’ so we’re spending a lot of time updating our legislation to make it modern to make it effective, to make it responsive. Because at the end of the day, good compliance creates good confidence in the markets and that’s good for everybody.”