Can Jim Flaherty achieve with persuasion what he couldn’t with coercion? The Cooperative Capital Markets Regulator (CMR) the federal finance minister unveiled in September represents the first substantive step in seven years of trying to unite Canada’s 13 provincial and territorial securities regulators under a single banner.
The Supreme Court of Canada derailed Flaherty’s last attempt to create a national markets cop by forcefully reminding him securities regulation falls under provincial jurisdiction. But Ontario and British Columbia have already signed on to the CMR, which is to be up and running by 2015. This represents a substantial beachhead; combined, the two provinces represent nearly two-thirds of Canada’s capital and financial market activity. But is it a clique that all the cool kids will want to join?
The CMR pre-emptively addresses some roadblocks. For instance, Ottawa will compensate those provinces that sacrifice lucrative regulatory fees by joining. It also proposes to create offices in each participating province and a board of directors with regional representation.
The territories and Atlantic provinces “will almost certainly come in,” predicts David Surat, a partner at Borden Ladner Gervais in Toronto. Saskatchewan and Manitoba are wild cards. Quebec is a write-off. Quebec Finance Minister Nicolas Marceau called the latest proposal unacceptable. But that may not matter in the long run. Quebec’s share of national activity is shrinking.
The CMR’s success hinges on Alberta, traditionally a staunch opponent of national regulation. Obtaining its participation would be a coup for Flaherty; Alberta offers a deep pool of issuers, retail and institutional investors. But many fear a Toronto-based regulator’s decisions might disadvantage the oil and gas industry. “A national securities regulator will result in added costs for small-cap issuers and will spell the end of the TSX Venture Exchange,” predicted Darrin Hopkins, an investment adviser at Macquarie Private Wealth’s Calgary office.
Quebec, Alberta and Manitoba remain satisfied with the so-called passport system, under which provinces harmonize many of their regulatory functions. Flaherty’s best bet might be to see that his new regulator delivers better investor protection, more rigorous enforcement, greater cost efficiencies and more international credibility. Then issuers and investors might choose to bypass non-participating jurisdictions entirely.