Canada needs a national securities regulator. Our bankers understand this fact, as do our venture capitalists, chambers of commerce, the OECD, the IMF and the politicians who run Ontario, where 40% of the country’s markets reside. We are, in fact, the only major industrialized economy without a national securities regulator: the existing system of 13 provincial and territorial fiefdoms is an antiquated contraption bilking money from corporations by forcing them to pay fees in multiple jurisdictions. The regulatory morass leads to endless chatter when swift policy action is required (as in the 2007 asset-backed commercial paper crisis). Worse, it offers uneven protection for investors.
Thankfully, the recent federal budget makes a national regulator inevitable. It will happen with or without the provinces’ consent. However, if the provinces refuse to play ball, the end result may bedevil Canada’s financial sector with more bureaucracy, rather than streamlining and strengthening it.
If Canada does get the remedy it needs, it will be thanks to the stubbornness of Jim Flaherty. The finance minister has advocated for a national regulator for nearly seven years, undeterred by provincial pigheadedness or even an inconvenient Supreme Court ruling. He pushed forward not because the idea has populist charm—it’s unlikely to garner many votes—but because it is a necessary reform. The budget promises that if negotiations with the provinces fail to yield results in a “timely” manner, the federal government will simply create its own regulator to monitor “systemic risk emerging from capital markets” on top of provincial securities commissions. The message to the provinces is clear: make a deal, or live under the minister’s thumb.
Collaboration is the better option. Flaherty drafted legislation in 2010 designed to unilaterally create a new system, but the Supreme Court said the law would infringe on provincial jurisdiction. However, the ruling said a “co-operative approach,” that allowed the provinces to voluntarily join the new national regulator, would be “supported by Canadian constitutional principles.”
Flaherty took the court’s advice. The finance department has worked to secure support from the provinces. Alberta and British Columbia, which both once firmly opposed the plan, are now said to be willing to consider it. These negotiations demonstrate there are common-sense remedies to the provinces’ objections. Alberta once worried about job losses if the new regulator established its headquarters in Ontario. But the budget envisions a model that would keep offices in each jurisdiction “with the capacity and resources to serve market participants locally.” This decentralized approach would also ensure an understanding of the differences in Alberta’s markets, which focus on smaller companies and individual, rather than institutional, investors.
Quebec now stands as the only significant opponent to the proposal. It’s doubtful a compromise exists to assuage the province’s parochial concerns about ceding its constitutionally granted authority to a national agency. Its finance minister already decried the budget as “economic sabotage”—particularly plans to remove job-training grants from provincial control. A renewed push for a common securities regulator will be seen as yet another assault on provincial sovereignty. We are now likely headed to two solitudes of securities regulation, with Quebec once again standing outside the Canadian system.
But the markets don’t care about a society’s distinctiveness; what matters is a minimum of red tape and the ability to respond to new challenges in an efficient manner. Having two systems operating in Canada isn’t much better than 13; even worse would be if Flaherty followed through with the budget’s implicit threat and bolted a federal layer on top. The business community—particularly in Quebec—must push our politicians to recognize that their own best interests will be served by being viewed as a modern market internationally, and not as the land that time forgot.
James Cowan is deputy editor of Canadian Business