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B. C. endorses national securities regulator
Panel suggests bypassing provinces that hold out

David Baines
13 January 2009

B. C. Finance Minister Colin Hansen has endorsed a proposal to replace Canada’s system of provincial securities regulation with a national regulatory regime.



“We believe that the objective of national regulation is the right objective,” Hansen told reporters Monday after a federally appointed panel unveiled a new proposal for national regulation at a Vancouver Board of Trade luncheon.

He confirmed that his endorsement amounts to approval in principle, but he said he wants to “look at the specifics” to ensure B. C.’ s interests are recognized.

The proposal was announced Monday by panel chair Tom Hockin, who was appointed by federal Finance Minister Jim Flaherty in February to recommend a system of national regulation to replace the current regime, which consists of 13 provincial and territorial authorities.

“A system of 13 separate regulators is too cumbersome, too fragmented, and too slow,” Hockin told the luncheon attendees at the Hyatt Regency Hotel.

Until now, the B. C. government has been opposed, or at least lukewarm, to national regulation. But Hansen said Victoria has moderated its position due to the panel’s stated intention to focus on outcomes-based regulation, favoured by the B. C. Securities Commission, rather than detailed prescriptive rules, which had been favoured by the Ontario Securities Commission.

He also said the B. C. government is encouraged by Hockin’s promise of a “ truly national” regulatory regime, with strong regional offices to ensure that B. C.’ s interests are not subsumed by Ontario.

In a potentially controversial provision, Hockin’s proposal would permit investment dealers and corporate issuers in a province that has not signed on to the national system to bypass provincial commissions and deal directly with the national regulator.

This provision, aimed at injecting some muscle into the proposal, would effectively pre-empt provincial regulators who do not sign on to the new system, and unilaterally turn what has historically been a provincial jurisdiction into a federal jurisdiction.

Hockin’s report says the committee obtained legal opinions confirming that the federal government “ has the constitutional authority to do so.”

Hansen said he is concerned about this provision, but remains optimistic the move to national regulation will be based on consensus, rather than compulsion. Under the current system, each province and territory has its own securities commission and its own securities act, which means every company or dealer that wants to do business in multiple provinces has to submit multiple filings and obtain multiple approvals. The result is a highly redundant, inefficient and costly system.

Provincial regulation also means that trading suspensions imposed in one province do not apply in other provinces unless those other provinces make specific reciprocal orders. Also, due to varying competencies and capacities of provincial regulators, enforcement is uneven.

Over the past several decades, countless committees have recommended various systems of national regulation, but these recommendations have been historically opposed by Quebec, Alberta and B. C.

While B. C. appears to be relenting, Quebec is still resisting on sovereignty grounds, and Alberta sees no need to relinquish its provincial authority.

“Alberta remains steadfastly opposed to a single federal regulator,” Alberta Finance Minister Iris Evans said in a release Monday.

“We will continue to oppose, through all available avenues, including legal action if necessary, any move toward establishing a single national regulator.”

Evans said Alberta favours a passport system, which all provinces except Ontario have officially adopted in lieu of national regulation. The system involves harmonization of rules and mutual recognition of orders.

“Alberta and most other provinces and territories have done a tremendous amount of work over the past four years to build the passport system, and this recommendation is an obstacle to that progress,” Evans said.

Flaherty has made national regulation a personal crusade. In previous years, he has cited weak securities enforcement as the main reason. More recently, he has cited the global economic crisis.

Hockin’s report reflects this concern: “ If the current economic crisis has demonstrated anything, it’s that systemic risk is no longer just a banking issuer responsibility. It’s increasingly showing up in capital markets as well,” he said, citing the example of asset-backed commercial paper, which dealers sold to institutional and retail investors without properly articulating their inherent risks.

Hockin is also recommending an independent tribunal to adjudicate enforcement cases. He said this would remove the perception of bias that arises when provincial commissions act as both regulators and adjudicators.

Under Hockin’s timeline, the new system would be implemented in two stages over a three-year period.