Investors Scrutinizing the Regulators

Home Page


Securities Regulation In CanadA

Fox Guarding the Hen House




National regulator: Plan would allow provincial bypass

John Ivison, Paul Vieira And Barbara Shecter

Saturday, January 10, 2009

The creation of a national securities regulator, to be recommended on Monday by a government-commissioned panel, would allow Canadian companies to bypass provincial stock watchdogs and file a single set of documents directly with the federal body -- a potentially crushing blow to provinces, notably Quebec, that don't want to participate in the revamped regulatory scheme.

Furthermore, the enforcement and adjudication arms of the new super-regulator would be separate, a key difference from the way Ontario's regulator and other provincial stock watchdogs operate.

Draft legislation to implement the new national regulator is being developed and could find its way into the coming Jan. 27 federal budget.

An expert panel headed by former Mulroney-era Cabinet minister Tom Hockin developed the regulator's proposed structure. The Financial Post learned key details from people familiar with Mr. Hockin's final report.

Jim Flaherty, the Finance Minister, said yesterday he will be in Vancouver on Monday, where Mr. Hockin is to deliver a speech unveiling details of his panel's completed report and explain why Canada needs this regulatory change.

It is understood that Mr. Flaherty, who commissioned the expert panel, will embrace the report's findings, and argue that the global financial crisis has underscored the need for Canada to scrap its checkerboard securities regulation scheme involving 13 separate provincial and territorial securities regulators for a stronger, single model.

The report, people say, will suggest the current system -- under which companies must file relevant information with all provincial and territorial securities agencies -- results in a "misallocation" of resources, and that regulation is "less efficient and less effective" than it would be under a national regulator.

After the Speech from the Throne last November, Mr. Flaherty said Ottawa would forge ahead with "willing" provinces to create a national securities regulator.

Indeed, the rules governing the new regulator will give provinces the option not to participate.

Quebec has long objected to the national scheme, and Alberta and British Columbia have been lukewarm about joining such a body.

However, the regulator's proposed structure would allow publicly traded companies based in the no-go provinces the ability to bypass the provincial watchdogs and file their documents -- such as prospectuses, financial statements and proxy circulars -- with the national regulator. This is likely to be addressed in the legislation, because currently companies need to file in each province if they want to sell shares to its residents, including large institutional buyers such as the Caisse de depot et placement du Quebec.

In an attempt to appease provinces, the national regulator would keep regional offices in provinces that have certain expertise -- such as Alberta with energy and British Columbia with mining.

A mould-breaking recommendation of the panel report is expected to be the separation of the enforcement and judicial arms of the national securities regulator. The expectation would be to follow the example of how Ottawa regulates competition: One agency, the Competition Bureau, enforces the law, but another independent body, the Competition Tribunal, determines whether the charges have merit and metes out penalties.

This recommendation is expected to be widely praised by industry players who say there is room for bias in the current model that puts stock regulators in the role of both prosecutor and judge. A 2004 report commissioned by the chairman of the Ontario Securities Commission recommended separating the adjudicative arm from the investigative and enforcement functions due to the "apprehension of bias."

As Mr. Hockin's panel made its way across Canada in the months since receiving its mandate last February, several industry players suggested methods and structures to strengthen the country's ability to track and successfully prosecute market crimes.