Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House




March 2008
Ottawa tries it again
Yet another federal group will work on a national securities regulator

By Paul Brent

Federal Finance Minister Jim Flaherty’s Feb. 21 announcement on the creation of an expert panel “to develop a model common securities act” is drawing both compliments and critique.

“It shows that the government is serious about facilitating a system for more effective securities regulation,” says Glorianne Stromberg, former commissioner of the Ontario Securities Commission, before adding: “I can’t help but observe that although the panel has top-notch advisors, the panel members themselves are heavily weighted toward the financial services industry and institutional investors. That’s troubling when you take into account that the terms of reference omit any reference to investor protection and maintaining confidence in the capital market.”

Headed by Tom Hockin, former Mulroney-era cabinet minister and more recently chairman of the Investment Funds Institute of Canada, the panel includes the CEOs of two brokerage houses, the CEO of a big energy company, a law professor who participated in the last group studying the topic, a Bay Street securities lawyer and a former auditor general of Canada. Ottawa has long championed a national securities regulator, and several federal study groups have supported it. But it remains stuck in a political quagmire.

Stromberg describes the absence of a panellist who represents investors’ interests as “a glaring omission, particularly in the current climate in which it is not an exaggeration to say that we have a crisis of confidence resulting from the subprime meltdown and resulting evaporation of investors’ capital.”

Hockin, however, contends that there already is a perfectly good representative for investors on the panel — himself.

“That’s where I’m coming from,” he says, “having been the president for 12 years of IFIC and also having to put together the structure for the regulation of financial services back in the 1980s.”

Hockin argues that the “going-in” assumption for his group is that one national securities regulator would be a positive for the average investor simply as a less expensive alternative to the current provincial regulatory hodgepodge.

The new panel is in something of a hurry. It has been asked by Flaherty to deliver its report by December and, as Hockin notes, panellists are toiling on a pro bono basis. So they are motivated to complete their job in a timely fashion.

As it stands, there are 13 provincial and territorial securities commissions, a system that Ottawa contends curbs investor interest and sets Canada apart from other western countries. As a solution, all the provinces and territories except Ontario — which wants a national regulator — have developed a passport system that recognizes, for example, a prospectus filed in one jurisdiction in all the other jurisdictions.

Hockin says his group will evaluate the passport system and construct common securities regulations that all the provinces can adopt, recommend how it can be adopted and establish a time frame to implement the proposed national system.

“If everyone likes the passport system,” he says, “I guess that is where we stay. But I doubt that will happen.”

As for all the effort expended by the previous panel on a national regulator, led by Osler Hoskin & Harcourt LLP counsel Purdy Crawford, which produced the 2006 report Blueprint for a Canadian Securities Commission, Hockin says it will form the basis of his panel’s work: “Our job is to pick up Purdy’s work; there is a great deal of help already building the structure from his report. We are going to go across the country, though, and talk to experts and get feedback. Plus, we are going to have a Web site so we can get voluntary feedback.”

Crawford, who was contacted by Hockin shortly after the new panel was announced, is supportive of its efforts, but has no insider insights. “Exactly what they are going to do I’m not sure,” he says. “The bigger job is not drafting something. It’s working at the lobbying or public policy level to influence the result, which is what we were continuing to do even though we no longer exist as a panel.”

Hockin acknowledges the political battle he will face getting widespread acceptance for a national regulator scheme, but exudes the optimism of a fresh panel.

“When they see the draft statute and see the structure, they might think differently,” he says of provincial regulators. “To some extent, they could be demonizing something they haven’t seen.

“Also, global markets are becoming very, very demanding,” Hockin adds. “We have to get our act together.”

Along with Hockin, the committee consists of Ian Bruce, CEO of Calgary-based investment dealer Peters & Co. Ltd. ; Terry Salman, chairman and CEO of investment dealer Salman Partners Inc.; Denis Desautels, Canada’s former auditor general; Hal Kvisle, president and CEO of TransCanada Corp.; Dawn Russell, former dean of law at Dalhousie University (and Crawford panel veteran); and Heather Zordel, a partner at law firm Cassels Brock & Blackwell LLP. IE