Why Canada Must Confront the Politicization of US Financial Oversight

The independence and integrity of US financial regulation are under unprecedented strain.

In a wave of executive orders and administrative actions, Donald Trump has systematically reshaped the regulatory landscape – weakening oversight, politicizing enforcement, and dismantling protections that underpin trust in the marketplace.

For Canada, the implications are immediate and far-reaching. While our attention focuses on tariffs, trade, and supply chains, a quieter but equally consequential shift is underway south of the border: The strategic rollback of capital market safeguards and the politicization of enforcement.

 Regulation must always be justified and never assumed. Smart deregulation – done with precision and purpose – can streamline compliance, reduce unnecessary costs, and spur innovation without compromising market integrity. Eliminating outdated, duplicative, or overly burdensome rules while maintaining robust safeguards against fraud and systemic risk, can free up capital, accelerate business growth, and make markets more agile.

But that is not what is happening in the United States. The Securities and Exchange Commission (SEC) – long a cornerstone of global market integrity – is now subject to political interference unseen in its modern history. Investigations are vetted by political appointees. Executive orders direct the agency to pause or abandon enforcement actions that conflict with the administration’s policy preferences or even favoured personalities. SEC staff have reportedly been instructed to defer to the (highly partisan) Attorney General’s legal interpretations, further blurring the line between independent oversight and a political agenda.

The chilling effect is already visible. Career professionals once free to pursue misconduct now operate under close political scrutiny. High-profile examples include the SEC’s decision to pause its civil fraud case against Justin Sun, a controversial crypto entrepreneur with political and financial ties to Mr. Trump. Allegations of unregistered securities sales and market manipulation remain unresolved, with Mr. Sun’s $75-million payment to attend a Trump-linked crypto event raising questions about undue influence.

Similarly, the SEC has slowed action against Binance, reinforcing perceptions of a broader regulatory retreat. Ethics experts warn these moves invite corruption, favouritism, and selective enforcement.

Canada should care. This is not simply an American domestic concern. For Canadian investors – particularly pension funds heavily exposed to US equities – the risk of fraud, market manipulation, and opaque disclosure is rising. Political considerations overriding legal principles erode the trust that underpins cross-border cooperation.

Canadian firms face a dual disadvantage: They may compete against actors exploiting weak US enforcement while they remain bound by stricter Canadian standards. This invites regulatory arbitrage, where bad actors gravitate to the weakest oversight.

The strain extends to anti-corruption enforcement. Under Mr. Trump, the Foreign Corrupt Practices Act – foundational to global anti-bribery frameworks – has been effectively sidelined. Investigations are deprioritized unless politically advantageous, and some cases have been abandoned. Canadian companies that comply with out Corruption of Foreign Public Officials Act (CFPOA) may lose contracts to less scrupulous competitors now operating with reduced fear of consequences.

Canada must resist any temptation to mirror these US developments by permitting greater political involvement or interference to masquerade as deregulation. Standards still matter. New growth is increasingly tied to markets – Europe, Southeast Asia, and beyond – where transparency and accountability remain vital to securing trade and investment. And it ensures bad actors are kept out of Canadian capital markets reducing risk and increasing investor protection. 

But Canada cannot ignore what is happening in the United States. It should seize this moment and take immediate steps to counter the impacts of US developments.

• First, Canada must undertake its own regulatory reform process, ensuring regulation is as efficient as possible and fit for purpose, streamlining processes and eliminating redundant and unnecessary rules.
• Strengthen enforcement capacity by modernizing investigative tools including use of AI, and ensure regulators have the resources they need.
• Deepen alliances with like-minded jurisdictions committed to transparent markets.
• Preserve robust crypto oversight while fostering responsible innovation –avoiding the US drift into permissiveness vulnerable to the next FTX-style collapse.

• Regulators should review disclosure rules for firms that may be systemically important and which have significant US exposure to ensure they are sufficient in this new environment. Any visibility gap created by US action should be closed so Canadian investors are fully aware of material legal, regulatory and enforcement risks.  
• Enhance competitiveness through smarter taxation, productivity investment, and innovation policy to help lessen any unfair advantage any unscrupulous US firms may enjoy from these US shifts. 

The US regulatory retreat is not a contained, short-term policy shift – it is a structural change with global consequences. It threatens investor confidence, distorts competitive fairness, and erodes the institutional trust that underpins modern finance. 

Canada has no choice to but confront the reality and adapt. 

Duncan Munn is Chair & CEO of Elevate Finance and former president of the C.D. Howe Institute. Jeff Kehoe is Former Director, Enforcement, Ontario Securities Commission.