In the latest of at least a half-dozen initiatives spanning four decades, the debate over the efficacy of a national securities regulator is front and centre yet again. But this time the outcome may be different.
“The potential for creating a national securities regulator is greater than it has ever been before,” says Philip Anisman, a Toronto lawyer and securities law expert.
Driving the current debate is the report of the Expert Panel on Securities Regulation, released in February.
“The report’s central theme is that Canada needs a single securities regulatory authority with a strong, decentralized structure that would promote the strengths of the current system while addressing its shortcomings,” says Heather Zordel, a partner with Toronto’s Cassels Brock & Blackwell LLP, the only lawyer appointed to the expert panel.
“It recommends adoption of a comprehensive national securities act and a national regulatory system administered by a new Canadian Securities Commission (CSC),” she says.
The expert panel envisages that the CSC as the securities regulator for those provinces and territories who agreed to participate, but allows for opting in by other provinces from time to time.
The report also says that market participants should be able to choose regulation by the CSC.
But the report has a different focus than its predecessors.
“The expert panel focuses on the need for a national securities regulator to address systemic risks in the capital markets and represent Canada on the international stage,” says Philippe Tardif, a partner at Borden Ladner Gervais LLP’s Toronto office.
As Zordel sees it, the report’s focus on investor protections will be a driving force behind its chances for implementation.
“What’s truly different this time around is that the public is engaged, and there has been strong backing from investor advocates who realize that Canada is still coming to grips with a last-century issue, namely that capital markets have moved on to an international stage where regulation is debated on an international level,” she says. “It’s not like people still get together under a tree and exchange stock certificates.”
Absent a national regulator, many argue, Canada will find itself out of the global loop.
“We need to implement a national regulator so that we are in a position to respond on a national basis to the new regulations that we will see coming at us from the U.S. and the U.K. in a whole range of capital markets areas,” says Barry Ryan, a partner with McCarthy Tétrault LLP’s Toronto office. “If we remain broken down into 13 little fiefdoms, our ability to customize what is required in Canada will be inhibited and hampered tremendously.”
The business community also appears united on the issue.
“Recognition of the need for a single regulator by the whole business community - not just the securities industry - has been growing consistently over the years and has mushroomed in the last decade to the point where business is virtually solid in the view that this makes sense,” Anisman says.
Even provincial politicians have been swayed.
“I believe the recognition that the international nature of markets more than ever requires a national regulatory voice is what moved B.C. Premier Gordon Campbell to agree to co-operate on this agenda,” Anisman says.
As well, Canada’s poor domestic and international reputation for enforcement speaks effectively to the need for a national regulator.
“To my mind, the problems can’t be addressed with the current system,” Zordel says. “We need to move to a common national platform for enforcement.”
There’s also a general perception that the political will necessary to establish a national regulator now exists.
“I believe that this government wants it to happen and that if it stays in power it will lay the appropriate foundation,” Tardif says.
Anisman is of similar mind.
“The minister of Finance is more committed to a national securities regulator than any predecessor going back to the Trudeau government,” he says.
Indeed, a national regulator would fit well with the government’s stated goal of encouraging the economic union of Canada.
And there appears to be more support from the provinces than there ever was in the past.
“Historically, the Maritimes and Saskatchewan from time to time wanted this,” Anisman explains. “Ontario was not consistently in favour, but in the last decade the province has come out unequivocally in favour of a national regulator, and British Columbia has now indicated its willingness to co-operate.”
Alberta and Quebec, however, are still opposed, although only Quebec seems truly adamant in its opposition.
So far, the federal government appears to have put its money where its mouth is. At press time, reports were circulating that an announcement from the federal government was imminent on the establishment of the Transition Office set up in the budget to assist in the development of a new federal securities regime. The Budget Implementation Bill, which received royal assent on March 12, allocated $33 million to run the Office.
The Bill also authorizes the minister of Finance to make up to $150 million available to the provinces for matters relating to the establishment of a new federal securities regime, provides for the creation of an advisory committee of participating provinces and territories, and for agreements to be entered into with the provinces and territories with regard to securities regulation.
“The government’s public commitment of money to establish the Transition Office and to fund payments to the provinces and territories for the establishment of a single securities regulator represents its most public commitment to date to move towards a single national securities regulator in Canada,” writes Tardif’s colleague and BLG associate Tal Cyngiser.
Still, those who oppose a national regulator argue that the existing passport system is working very well. But Zordel counters that the argument should be taken in context.
“The passport system does work quite well in the areas in which it operates, like clearing prospectuses,” she says. “But moving forward we’re going to be dealing with a much broader range of issues, such as the regulation of derivatives, mutual recognition on an international scale, and integration of regulation, for all of which a passport system isn’t the right vehicle.”