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Canada’s Flaherty to Move Ahead With Common Regulator

By Christopher Donville and Theophilos Argitis

Jan. 12 (Bloomberg) -- Canadian Finance Minister Jim Flaherty said he plans to move ahead with a common securities regulator to help the world’s eighth-largest economy cope with turmoil in financial markets, only hours after a government- appointed panel recommended he impose a national watchdog.

The government will unveil further steps toward a common financial regulator in its Jan. 27 budget, Flaherty said, without providing details. The plan will be “comprehensive” and “voluntary,” he said.

“The global financial crisis has thrust the role of regulation and the lack of it into the limelight,” Flaherty, 59, told reporters today in Vancouver.

“This is not the time for business as usual,” he said.

Flaherty’s announcement comes just hours after the government-appointed panel said Canada should set up a national securities regulator and harmonize provinces’ rules for investors. The federal government has a “constitutional” right to impose a regulator that would have authority to pre-empt existing provincial agencies, the seven-member panel said in its report.

“Canadians are ill-served by such a Balkanized system,” Thomas Hockin, the panel’s chair, said in a foreword attached to the report. “We are assured by our constitutional adviser the federal Parliament has the constitutional authority to enact legislation that would provide for comprehensive capital markets regulations in Canada.”

Only Country Without

Canada is the only member of the Group of Seven industrialized nations without a national securities watchdog. Flaherty has been pushing for 2 1/2 years for a single regulator to replace 13 provincial and territorial agencies that monitor financial markets, arguing it would cut costs and improve efficiency.

Flaherty appointed the panel last February.

Canada loses about C$10 billion ($8.22 billion) in economic output each year and 65,000 jobs because of its fragmented securities regulation, according to a 2007 government- commissioned reported by John Coffee, a Columbia University Law School professor.

The current framework also doesn’t include safeguards against “systemic risk,” the panel said, making financial markets across the country vulnerable to a bad decision by one of the provinces.

Mutual-fund management fees in Canada, among the world’s highest, would also fall if the proposed single regulator is established, Hockin told reporters in Vancouver.

Largest Capital Market

While the federal government’s efforts have won backing from Ontario, the most populous province and home to the country’s largest capital market, other provinces have sought to harmonize their rules while stopping short of a centralized system.

Officials from securities regulators in the provinces of British Columbia, Alberta and Quebec have said in the past they prefer the current “passport” system which is slated to soon let companies apply for approval in one province instead of 13.

Such a system is insufficient for today’s circumstances, the panel concluded.

“Although the passport system is a major step forward, most stakeholders told us that its application is limited and it still falls short of what is required in today’s global marketplace” Hockin said in the foreword.

Ontario ‘Pleased’

British Columbia Finance Minister Colin Hansen said in an interview his province is now prepared to drop its opposition to the idea of a single regulator. Ontario Finance Minister Dwight Duncan said in a statement he’s “pleased” the report endorses his province’s position.

Alberta Finance Minister Iris Evans, meanwhile, said her province continues to back the passport system, and threatened legal action should the federal government impose a national watchdog.

“We will continue to oppose, through all available avenues, including legal action if necessary, any move toward establishing a single national regulator,” Evans said in a statement.

Quebec Finance Minister Monique Jerome-Forget isn’t likely to comment until tomorrow, according to Catherine Poulin, a spokeswoman. Quebec Premier Jean Charest was quoted by Canadian Press as saying securities regulation falls under provincial jurisdiction.

Opposition to the plan has been strongest in Quebec, Canada’s only French-speaking province, where politicians say a common regulator might shift more financial power away from Montreal, the province’s biggest city, to Toronto, Ontario’s capital and the country’s financial hub.

Two-Year Transition

Under the system proposed by the panel, the federal government would start negotiations with provinces and prepare a bill to set up a regulator. There would be a transition of about two years after the law’s passage before the system came into effect. The new securities commission would be accountable to the federal finance minister.

Investors and brokers in non-participating provinces would be allowed to “opt-in” to the system after a “reasonable period of time,” the report said.

“The opportunities are too great, and the stakes too high, to simply muddle through as usual,” Hockin said today in a speech in Vancouver.

The panel recommended that the regulator set up regional offices to provide the “high level of local service” currently offered by provincial regulators, and published a draft Securities Act as a road map for lawmakers.

Hockin said the panel’s proposal for a single regulator recognizes “the distinct needs” of smaller securities markets outside the umbrella of the Ontario Securities Commission, or the OSC.

“We don’t want an OSC on steroids,” Hockin said in a speech today. “That’s why we’re proposing a national regulator with a decentralized structure.”

To contact the reporter on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net ; Theophilos Argitis in Ottawa at targitis@bloomberg.net

Last Updated: January 12, 2009 20:29 EST