Opinions split over single regulator recommendation

By Kanupriya Vashisht | January 13, 2009 | Last updated on January 13, 2009
3 min read

The verdict is out. While Ontario, Nova Scotia and British Columbia have expressed support for Finance Minister Jim Flaherty’s plan for a national securities regulator, Alberta and Quebec have outright balked at the recommendations, threatening legal action in a bid to keep jurisdiction over regulation.

Flaherty said in a statement that the seriousness of the current financial and economic crisis calls for bold action. “I’m optimistic provinces and territories will join us in the coming months as willing partners to discuss the next steps in establishing a new regulatory regime.”

Ottawa needs only five or six of Canada’s 13 jurisdictions, accounting for two-thirds of market value, to have the critical mass to go ahead with a single regulator. Measures and details will be included in the 2009 budget.

Prof. Michael Code, faculty of law at the University of Toronto, and a member of the Ontario Securities Commission’s Enforcement Advisory Committee, found nothing unexpected in the general response to the report. The big change for him was that British Columbia had finally come around.

“Alberta and Quebec have taken a very parochial and archaic position. It’s contrary to the interests of the country and the business community at large,” Code said. “Business communities will exert a lot of pressure in these provinces. This definitely won’t be the long-term face of the confederation.”

Code is confident the move will eventually gain momentum; the dissenters will turn around; and reason will eventually prevail.

He credited Flaherty with handling the dissenters cleverly, and not taking an aggressive stance. “The government could have taken a more aggressive approach, it could have challenged the constitution and would have won.”

First off, Canada could emulate Australia, which challenged a Privy Council decision that ruled the states had jurisdiction. The government moved the Australian Supreme Court, which came down in favor of a federal regulator. The Canadian constitution, which shares similarities with the Australian constitution, can follow that commonwealth nation in forming a one-stop national securities regulation system.

Secondly, in Canada, “peace, order and good government”, often abbreviated as POGG, define the principles under which the Canadian Parliament should legislate. The “national dimensions” (originally called “national concerns”) doctrine was an alternate means of applying the POGG powers in the mid 20th century. It allowed parliament to legislate on matters that would normally fall to the provincial government when the issue took on national importance.

Specifically, the phrase appears in section 91 of the Act, which is part of the block of sections that divide legislative powers between the federal and provincial levels of government. It describes the legal grounds upon which the federal government is constitutionally permitted to pass laws that intrude on the legislative purview of the provinces.

In the 1979 federal-provincial conflict over energy pricing and revenue sharing, the fed used POGG effectively to ram through federal energy rules and legislation. The federal government could similarly argue having a single securities watchdog is in the national interest and in the interest of commerce and banking.

Flaherty has, however, made clear the federal government’s approach, in keeping with the Expert Panel’s recommendations, will be reasonable, flexible and effective. “We will respect the jurisdictions of the provinces and territories, and work with them as partners.”

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

Another study funded by the Investment Dealers Association of Canada (now IIROC) found that adopting a single securities regulator would save the brokerage industry $73 million a year directly, not including intangibles and potential indirect costs.

Despite violent opposition from some provincial governments, the report has garnered loud support from various corners. CARP welcomed the recommendations calling them a major advance in investor protection in Canada at a time of market chaos that has robbed many older Canadians of their retirement security.

Kanupriya Vashisht