Impact Of Strict Government Regulations On Businesses In Canada

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Historical Background of Business Governance in Canada

The government imposes regulations on businesses to govern them in order to ensure that they did not act unethically by misusing their position, and they contribute to the economic growth of the nation. Various historical incidents highlighted the importance of the governance of businesses in Canada. The regulations imposed by the government on businesses focus on risk assessment and risk management. The regulations imposed by the government focus on protecting the rights of minorities to ensure that large organizations did not misuse their power to violate their rights. 

This essay will focus on analyzing a recent issue which has gained media attention in Canada relating to the imposition of strict regulations by the government on businesses. The thesis will argue that imposition of these regulations is not beneficial for the corporations because it limits their growth opportunities and makes it difficult for them to expand their operations. This essay will evaluate the imposition of strict regulations on directors and how they are facing immense pressure from the government while discharging their duties.

Recently, Canada becomes the world’ first-ever country to make a law which provides that every new regulation introduced, one must be eliminated. The leadership of British Columbia his notable for its results and longevity at the provincial level; there has been a reduction in regulatory requirements by 48 per cent since 2001. Due to these changes, many entreprenures have established their business in the country while maintaining a high level of safety and environmental protection. This regulatory model has become a beacon of hope for leaders who are interested in making progress in challenging policy areas.

However, these changes did not bring benefits to Canadian businesses. A study conducted by the Canadian Federation of Independent Business provided that the cost of regulation to Canadian business is $36 billion in a year. Red Tape Awareness Week is started by the Canadian Federation of Independent Business which is a week that is dedicated to highlighting excessive regulation cost and encouraging the government to take action regarding addressing this issue. It is provided that around $10 million is wasted on excessive regulation on businesses in Canada.

These regulations are becoming a serious issue for the future of the economy of the country because it is highly unlikely that people would prefer to start a business in the future due to high regulation costs. It is likely to adversely affect a large number of small businesses in the country due to the pressure of excessive compliance with regulations. It is argued that the regulatory burden is undermining business competitiveness in the country which is unhealthy for its economy.

Due to the pressure of these regulations, the businesses are becoming less competitive which makes Canada a less attractive place to invest, start or grow a new business venture. The objective of these regulations is to create a safe business environment; however, these regulations have started to smother businesses and making it difficult for them to expand their branches into new fields without facing pressure from government regulations. The United States has implemented significant corporate tax and regulatory reforms in the country under the Trump Administration and being the largest trading partner and competitor, Canada cannot fall further behind the country.

Focus of Government Regulations on Risk Assessment and Risk Management

The Canadian government is required to improve its regulatory framework and making it more suitable for small and medium businesses to ensure that they did not feel the pressure of regulations which resulted in adversely affecting their ability to expand and increase their profitability.

A good example is the new rules implemented by the government for mortgage lending in Ottawa. As per the guidelines published by the Office of Superintendent of Financial Institutions, the government is moving forward with regulations which are making it tougher for Canadians to qualify for uninsured loans. Due to these regulations, the customers will have to pay a down payment of 20 per cent or more which resulted in making it difficult for them to apply for a loan. 

These regulations adversely affect the business of banking firms and other financial institutions which offer the facility of mortgage lending. Although these policies are safe, and they reduce the risk of increasing a large number of loans which could hinder the economy of the country, however, they limit the growth opportunities for businesses which adversely affect their future profitability. It also makes banking and other financial institutions less attractive for investors to invest their money.

This issue is highlighted by the recent media articles in the country which raises the questions on the legislative framework implemented by the government of Canada. The changes made in the Canada Mortgage and Housing Corporation Act is a good example. As per these amendments, it has become difficult for Canadians to get uninsured loans because the government has changed the qualification criteria. The regulations of this act resulted in adversely affecting the organizations which operate the business of banking and other financial services relating to the lending of loans.

These regulations reduced the number of parties that take uninsured loans which hinder the profitability of the banking sector in Canada. Another example is Canadian Anti-Spam Legislation (CASL) which is a law implemented by the government to protect the personal information of people. Although the objective of this law is to protect the online privacy of individuals and avoid spam messages, however, it resulted in making it difficult for corporations to market their products. Organizations find it difficult to share their products or services to customers without considering it as spam. It is also difficult for them to collect private information of customers to contact them to promote their products and services through digital sources.

The Canadian Business Corporations Act also imposes strict regulations on companies operating in Canada. The regulations are imposed to ensure that corporations did not misuse their position, and they did not unethically conduct their businesses. However, these regulations resulted in increasing pressure on the corporations and their management. The directors have to maintain a duty of care while taking business decisions to ensure that they exercise their powers with due care and diligence, and they did not misuse them to gain an unfair advantage. Although these policies are beneficial for the company, however, the strict implementations of these policies raise challenges for directors of foreign countries who operate their business in Canada.

Recent Media Attention on Imposition of Strict Regulations on Businesses

They have to deal with a large number of regulations, and a small mistake could lead to negative consequences. The judgement given by the court in R. v, Peterson, [2006] A.J. No. 286 is a good example in which the court finds director acquiescence offences are actually full mens rea offences. It shows that the directors can be held liable in the Criminal Code if they failed to discharge their duties in an appropriate manner.

Based on the above observations, it is analyzed that the regulatory framework implemented by the Canadian government is substantially strict in many situations which are negative for the economic growth of the country. In order to implement a safe business environment, the government has implemented stricter regulations which did not allow corporations to take higher risks which provide them various benefits. There are many inconsistent and unpredictable rules and processes in the country which are making it difficult for businesses, whether large or small, to comply with them. In the long run, these regulations are likely to hinder the economic growth of the country by reducing the number of small businesses because they find it difficult for complies with these laws. 

The cost of compliance with these regulations is substantially high as well which makes it difficult for them. The directors of corporations are afraid to breach any regulations due to which they or the company could have to pay penalties to the government. This issue will continue to adversely affect the economy of Canada until the government resolves it.

In conclusion, the key issue with government regulations in Canada is that they are substantially strict which makes it difficult for businesses to take risks in the countries. This issue is reducing the number of small businesses in the country which would result in hindering its economic growth. The provisions of CASL, Canada Mortgage and Housing Corporation Act and Canadian Business Corporations Act resulted in creating challenges for organizations which are operating their business in Canada which affects their profitability.

The government should address this issue by considering the research relating to Red Tape and reduce the number of unnecessary regulations which creates challenges for businesses in Canada. The government should promote competition between organizations by allowing them to take risks and it should support small businesses as well. The increased competition in the country will bring new growth opportunities, and it will increase the number of investors in the country.

References

Abella, Irving, and Harold Martin Troper. None is too many: Canada and the Jews of Europe, 1933-1948. University of Toronto Press, 2012.

Bottomley, Stephen. The constitutional corporation: Rethinking corporate governance. Routledge, 2016.

Broughel, James and Laura Jones. “Effective Regulatory Reform.” Mercatus Center, 2018, https://www.mercatus.org/publications/state-and-local-policy/effective-regulatory-reform-united-states-vs-british-columbia. Accessed 15 November 2018.

Dubreuil, Guillaum. “Regulatory Burden Undermining Business Competitiveness, New Chamber Report Rinds.” Canadian Chamber of Commerce, 2018, https://www.chamber.ca/media/news-releases/180531-regulatory-burden-undermining-business-competitiveness/. Accessed 15 November 2018.

Gibson, Robert B. "In full retreat: the Canadian government's new environmental assessment law undoes decades of progress." Impact Assessment and Project Appraisal 30.3 (2012): 179-188.

Groiaco. “Ontario Court of Justice.” Groiaco, 2007, https://www.groiaco.com/pdf/Judgment.pdf. Accessed 15 November 2018.

Jones, Laura. “Regulations cost businesses $36 billion a year — and owners are telling their kids being an entrepreneur isn't worth the costs.” Financial Post, 2018, https://business.financialpost.com/entrepreneur/regulatory-accumulation-is-still-damming-entrepreneurial-flow-comment. Accessed 15 November 2018.

Marr, Garry and Barbara Shecter. “Canada's banking watchdog sets tougher rules for mortgage lending.” Financial Post, 2018, https://business.financialpost.com/real-estate/mortgages/canadas-banking-watchdog-sets-new-rules-for-mortgage-lending. Accessed 15 November 2018.

Mochrie, Dominic. "Canada's anti-Spam/anti-Spyware Legislation: An Overview." Int'l J. Franchising L. 12 (2014): 25.