It may seem odd to think of an industrialized economy without a single securities regulator, yet that is the case in Canada. With 13 separate regulatory bodies, each with home provincial or territorial jurisdiction, Canadian securities law can be difficult for investors to navigate.
Canadian minister of finance Jim Flaherty has made several attempts during the past few years to create a national regulator, with little success. But in September he came a bit closer to making the prospect a reality by altering his strategy. Instead of trying to reach a consensus with all jurisdictions, Flaherty proposed a cooperative capital markets regulator (CCMR) that would be based in Toronto, the country’s financial center, and have offices in all participating provinces and territories. A board appointed by provincial ministers would direct all decisions by the new agency. Presently, this cooperative agency has had only two provinces sign on — Ontario and British Columbia — as well as the Canadian federal government.
At first glance, the fact that only two Canadian provinces have signed on may appear disappointing. But, as Flaherty explains in an e-mail to Institutional Investor, “British Columbia and Ontario account for over 50 percent of Canada’s market capitalization of firms listed on Canadian exchanges, 75 percent of Canada’s public issuers and a significant share of market activity.”
The cooperative system will have a common regulator administering a single set of regulations designed to protect investors, support efficient capital markets and manage systemic risk. The regulator will be responsible for policy development and regulation making, regulatory operations and enforcement, and will have a separate and independent tribunal.
Under the proposed regulatory system, each participating province and territory will need to adopt a uniform act to address all the areas that presently fall under the purview of provincial securities legislation. The federal government will enact a complementary act to address related financial crimes and matters relating to systemic risk in national capital markets as well as national data collection.
The deal calls for all participating jurisdictions to agree on the terms and conditions of the new system by January 31, 2014. Provincial and federal legislation will need to be enacted by December 31, 2014, and the CCMR is expected to be up and running by July 2015.
In an e-mail British Columbia minister of finance Mike de Jong tells Institutional Investor that his province “has consistently supported the concept of a cooperative securities regulatory system that respects constitutional jurisdiction ... improves enforcement and is responsive to regional markets such as B.C.’s venture capital markets. I hope other jurisdictions give serious consideration to joining the cooperative system.”
And therein lies part of the rub in this agreement. While two of the largest economies in Canada have signed on, other high-grossing provinces such as Quebec and Alberta are wary of handing over securities regulation to a governing body based in Toronto.
“It has never been shown, in any manner, that the current system in Canada is not working,” Quebec finance minister Nicolas Marceau was quoted as saying in the Canadian press. He has also called the proposal “unacceptable.” The Quebec government is also of the view that the federal government is trying to move jobs away from Montreal to Toronto: Marceau claimed in a press release, “The federal government’s true objective is clear ... to transfer the 154,000 jobs in the Quebec financial sector to Toronto.” In a subsequent press release, Marceau stated his opinion that the centralization of financial regulations in Toronto would be unjustified.
When the agreement was announced in September, Alberta finance minister Doug Horner made a statement that his province has an “open mind” about the new system but that some elements in the proposed agreement are not going to work. He also voiced, however, his “surprise” that other provinces were not brought into this discussion prior to the announcement of the proposal and that some sections of it “are not quite acceptable to Alberta,” specifically the terms of providing vetoes to the federal government or ceding some of the expertise Alberta has in the oil and gas sector to other jurisdictions.
As for Manitoba, Stan Struthers, the province’s finance minister, said in a written statement that he was made aware of Ottawa’s proposal through the media and that he would have to review it before commenting further. In the past he has been a noted supporter of Canada’s passport system of securities regulation, which allows policies decided in one province to be valid in other provinces.
So far, ministers from the federal and co-signing provinces are “inviting the ministers responsible for securities regulation in all provinces and territories to participate in the cooperative system,” says Flaherty.
Not surprisingly, the news has been well received by the Canadian investment community. Ian Russell, president and CEO of the Investment Industry Association of Canada, says his association has always been supportive of some kind of national securities regulation. “This is different from all previous proposals because this one gives assurance that it will become effective as a regulator,” says Russell. He explains that because there is an agreement between at least three governments, it is more than a theoretical construct. “If this gets going, it will, in our view, become a bona fide national regulator,” he adds.
The bad news, according to Russell, is that the creation of a second regulatory system will be disruptive to the markets. But, he adds, “at the end of the day, the risks and the disruptions are worth the effort in doing it.”
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