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Crisis used to push for single regulator
Breakthrough in Ottawa's bid for watchdog: advisor

Eoin Callan and Barbara Shecter, National Post; with files from Paul Vieira in Ottawa


Thursday, October 30, 2008


The severity of the global financial crisis has created a sudden opening for Ottawa to ram through a plan to create a single Canadian watchdog to oversee financial markets and replace a jealously guarded system of provincial supervision.

Prime Minister Stephen Harper will force the issue at a meeting of premiers in Ottawa and expects to head to Washington days later armed with a credible pledge to create a national securities regulator, as world leaders gather for the most ambitious economic summit since the end of the Second World War.

Chris Wattie/Reuters

Prime Minister Stephen Harper (right) talks with Finance Minister Jim Flaherty during a meeting in Harper's office in the Langevin Block in Ottawa on Oct. 28, 2008.

  The creation of a central authority has been three decades in the making and is seen as vital to bringing Canada into line with other industrialized nations and improving Ottawa's ability to react when the stability of the financial system is threatened.

"It seems ludicrous that others around the world are looking to merge regulation of securities, banking and insurance and we don't even have a single securities regulator," said one person advising the government.

The political opening was created in the past two weeks following urgent appeals for federal relief from provincial ministers and financial institutions, including Desjardins, the biggest lender in Quebec.


A breakthrough came this week after face-to-face negotiations between Finance Minister Jim Flaherty and Monique Jerome-Forget, the Finance Minister of Quebec, the biggest stumbling block to a single regulator.

The federal Finance Minister agreed to belatedly include Desjardins in a national plan to backstop banks, but attached conditions, according to people familiar with the dialogue.

As part of the deal to guarantee new borrowing in international markets by Desjardins, Quebec softened its opposition to moves toward a federal regulator that would include a seat for each province on its governing board, people close to the process said.

Both Ms. Jerome-Forget and Mr. Flaherty declined to comment on the dialogue.

Desjardins fiercely resisted the link between its plea for a federal backstop and government supervision, but was excluded from the talks after officials in Ottawa indicated discomfort at underwriting billions of potential borrowings without closer oversight of the institution's books.

Mr. Flaherty told a Bay Street audience Wednesday that "given the unprecedented turmoil in international financial markets," it was "time to move toward a single securities regulator."

The Minister said Canada faced a "new reality" after the "sudden and dramatic" collapses on Wall Street, with each "raising the risk of Canada's system being side-swiped."

He stressed it was important the new Canadian Securities Regulator "reflects regional interests, yet can quickly respond with a single voice to market developments."

Mr. Flaherty's staff are thought to have a working draft of the legislation ready, following consultations with Washington and London and recent cross-country hearings held by a special panel appointed by the Minister to revive the long-dormant issue.

His comments on Bay Street on Wednesday set the stage for preliminary negotiations between the federal Minister and his provincial counterparts on Monday at Pearson International Airport, before he flies to Brazil for crunch talks with finance chiefs from the Group of 20 most-industrialized nations, itself a warm-up to the leaders' meeting Washington.

Mr. Flaherty will be conspicuous in the company of G20 finance ministers in that he will be the sole finance chief who does not have some direct authority over securities regulation.

"The fact that one of them has no national presence makes us look like a banana republic," said Michael Code, a lawyer who presented to the Expert Panel on Securities Regulation that was established by Mr. Flaherty in February.

The advisor said the current financial and economic crisis is "Exhibit A" in the case for a national regulator because of the global nature, and the coordinated response of governments.

Currently, the heads of the central bank and the government's finance department have to meet with the leaders of 13 provincial and territorial securities regulators when acting on the world stage.

This was blamed for slowing Canada's reaction to the crisis at critical moments, including when regulators temporarily suspended the practice of short selling, when financial speculators bet a stock will fall.

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