Investors Scrutinizing the Regulators

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Can Jim Flaherty regulate the regulators?

November 23, 2008


Ann Perry

Business Reporter

Economic volatility helps the minister's case but not all provinces are ready to jump aboard

For years, commissions and panels have recommended that Canada's current patchwork quilt of provincial and territorial securities regulators be replaced by a single national watchdog.

But in some provinces notably Quebec the idea has always run aground on the shoals of resistance to federal encroachment.


Finance Minister Jim Flaherty pauses while listening to a reporter's questions as he arrives for the cabinet shuffle at Rideau Hall in Ottawa, Oct. 30, 2008.

Now federal Finance Minister Jim Flaherty appears poised to forge ahead, citing current economic volatility. In the throne speech last week, the Conservative government said it "will work with the provinces to put in place a common securities regulator."

But there's a hitch.

"We're going to do this with our willing partners," Flaherty said after the speech. "Those who do not choose to, will not join."

Which raises the question: What's the point of a "common" securities regulator if provinces can opt out?

Canada has long been singled out for being one of the only major industrialized countries without a national securities regulator overseeing its capital markets. That has led to complaints about red tape, inefficiency and fragmentation.

Despite that, many observers are taking a pragmatic view of the path Flaherty appears to be taking.

"Many of us have thought for a long, long time that if it were possible for the federal government, for example, to occupy the securities field with a federal regulator, that would be perhaps the ideal solution," said Christopher Nicholls, a securities law professor at the University of Western Ontario.

"But we all recognize that in the Canadian context, there are important political reasons that make that difficult or impossible."

Nicholls thinks a common securities regulator "would be a great improvement for Canada."

"If the only way that we can get such a regulator. . . that is acceptable to all of the provinces and territories is to do it on a voluntary basis, that looks to me like a step in the right direction," he said.

He added that it would be premature to judge whether a "common" securities watchdog that doesn't include some provinces could overcome the problem of regulatory fragmentation until Flaherty puts a detailed proposal on the table.

That likely won't happen until an expert panel on securities regulation, appointed by Flaherty earlier this year, reports in early 2009.

Stephen Jarislowsky, chair of investment management firm Jarislowsky Fraser Ltd., called Canada's current system of 13 provincial and territorial regulators "archaic" and said he is "very pleased" with Flaherty's proposal. He predicted that provinces that opt out could be shut out by foreign investors, and suggested it could put pressure on them to join the scheme.

Purdy Crawford, who headed a panel appointed by the Ontario government that in 2006 recommended a blueprint for a common securities regulator, said "all I can say is it looks like (Flaherty is) making headway." As for the prospect that some provinces might opt out, Crawford said, "when I was involved, we always said success is not 100 per cent."

Others took a more skeptical view. "If the criticism of Canada is that we don't have a single national regulator, we still wouldn't have a single national regulator," said Jeffrey MacIntosh, a law professor at the University of Toronto.

Ontario has long backed the creation of a single regulator. Flaherty said this week that more than one province is on board with the idea, but did not specify which ones.

In addition to Quebec, other likely holdouts include Alberta and British Columbia, although B.C. Premier Gordon Campbell has recently hinted he may be more open to the idea. Faced with such opposition, why doesn't the federal government simply impose a national securities regulator?

Aside from the thorny politics, such a move may fall into a constitutional grey area between federal and provincial powers.

"There's some difference of opinion on that, but I'm pretty confident the answer is the federal government can create a securities commission," under the trade and commerce power in the Constitution, said MacIntosh. "I think everybody agrees on that, at least."

"What's up for grabs a little bit more is whether or not the feds could effectively impose that on the provinces and cause their legislation to be suspended," he said.

Some legal opinions have suggested Ottawa could do just that. But MacIntosh thinks the courts would allow securities laws in holdout provinces to continue, except to the extent that they conflict with a federal law.

"I think what it means is that if we really are going to get a single national regulator, it has to be through co-operation between the provinces and the feds,'' MacIntosh said. "Basically, they all have to agree. And I've been arguing for years that that's simply never going to happen."

With files from the Star's wire services