When Wall Street turned to Canada

How a Royal Bank executive is helping rewrite U.S. finance law

When Wall Street turned to Canada

Jin Lee/Bloomberg/Getty Images

In August, Washington passed the Dodd-Frank Act, the most ambitious overhaul of financial regulation in decades. Turns out that was the easy part. Now regulators must grapple with how to put the mammoth new law into effect, and as Wall Street ramps up its lobbying effort to soften the impact of the reforms, Canada’s biggest bank has claimed a seat at the table.

In mid-November, John Taft, CEO of Royal Bank’s U.S. wealth-management division, took the helm as chairman of one of Wall Street’s most powerful industry groups, the Securities Industry and Financial Markets Association (SIFMA). It’s the first time a representative from any of Canada’s banks has held the spot, and in the lead-up to his one-year appointment, he’s made the rounds on business news channels like CNBC and Bloomberg—always with the yellow RBC lion prominently displayed over his shoulder—to argue that unless the new rules governing Wall Street are properly thought out, the end result could be over-regulation that hurts the economy. “Priority number one is to make sure regulatory reform proposals are implemented in the right way that makes the system safer, sounder, more secure without inhibiting the ability of financial institutions to promote economic growth,” he told Maclean’s.

That Taft has been given the task of speaking on behalf of hundreds of U.S. banks and securities firms says a lot about how RBC’s efforts to crack that market have finally begun to pay off. After a bumpy start last decade, when its early American acquisitions failed to show immediate results, RBC Wealth Management has since become the sixth-largest full-service brokerage firm in the U.S. During the depth of the crisis in 2008 and 2009, the firm lured more than 400 financial advisers away from rivals, while this past summer J.D. Power ranked RBC second in a customer satisfaction survey. Analysts have credited much of RBC’s U.S. success to Taft, who became CEO of the American wealth management division in 2005. (Though not Canadian himself, Taft’s ties to Canada go back to his great grandfather, president William Howard Taft, who owned a vacation home along the Saint Lawrence, in Quebec.)

One of the key reasons Taft believes he was offered the position was that Canada’s financial system held up so well during the crisis. “I don’t have any corporate baggage when I speak about reform because my parent organization, RBC, behaved in a way that everyone wishes financial institutions in the United States had behaved, i.e., prudently, conservatively, with one eye on what was good for the financial system in Canada,” he says.

In drafting the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress did not to attempt to write specific rules into the legislation. Instead, the act is largely a set of principles which, among other things, sets up a consumer watchdog, establishes oversight of the vast and opaque derivatives market, and gives Washington new powers to seize and break up troubled financial firms. Legislators have left it up to regulators to hammer out the details over the next 18 months in the form of hundreds of new rules.

Taft’s message to regulators now is one of caution. For instance, he points to the Volcker Rule, which aims to prevent banks from using depositors’ money to make risky bets for themselves. The problem, he says, is that banks make such investments for a number of reasons, including to add liquidity to markets, and it’s virtually impossible to isolate one type of trade from the other.

Still, for many in the U.S., the mere thought of the securities industry getting involved with regulators in drafting financial reforms is cause for concern. “The industry lobbying effort to water down the law, look for loopholes and widen exemptions is enormous,” says Lisa Donner, executive director of Americans For Financial Reform. “It’s appropriate that [financial institutions] should be part of the conversation, but what would be terribly wrong is for their voice to win out over the public interest voice.”

Taft is keenly aware of the mistrust that exists across America, and insists SIFMA has no interest in overturning the reform legislation, only in making the new rules work well. “The law is written, it’s not going to get repealed,” he says. As for what this all means for RBC, Taft argues the U.S. wealth-management business has already adopted the culture and policies of its Canadian parent, giving it an advantage as new rules come into practice. “We wanted to get to a point where we were a player in the U.S. market, and now we are,” he says. “Now what we want to do is be the best-performing wealth-management firm in the U.S.”

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