November 23, 2008
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.
SEAN KILPATRICK/THE CANADIAN PRESS
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
"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
"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