A hint of Alberta, a soupçon of Quebec: New proposal for a national securities regulator will have a more provincial flavour

  • September 12, 2012
  • Janice Tibbetts

Six months after the Harper government said it would try once again to create a national securities regulator, some legal analysts predict Ottawa and the provinces could negotiate a new model that will tweak, rather than overhaul, the failed 2010 federal proposal.

"We've tried to skin this cat multiple ways and in the end everybody seems to come back to the same thought: that you need one body that is responsible," says Heather Zordel, a partner in the securities group at Cassels Brock in Toronto.

"For the years and years that we've looked at this proposal, we've always known it was something that was going to have to be negotiated, so let's get everybody to the table."

Ms. Zordel was a member of the federally appointed Expert Panel on Securities Regulation, who helped craft the legislation that would have replaced the 13 provincial and territorial regulators with a national regulator.

Facing opposition from several provinces, primarily Alberta and Quebec, the federal government asked the Supreme Court of Canada for a legal opinion on whether Ottawa had the constitutional power, under its jurisdiction over trade and commerce, to create a national regulator.

Opponents, who included Saskatchewan, New Brunswick and British Columbia, argued that securities regulation falls under provincial power over property and civil rights.

The Supreme Court, in its December 2011 decision, rejected the federal argument that it had the unilateral power to regulate. The court concluded that only some aspects of the securities market — such as systemic risk and other factors affecting the stability of the Canadian financial system — are national concerns.

Nonetheless, the bench recognized the prospect of a common regulator that was based on a model of co-operative federalism.

Ms. Zordel says that amounted to an invitation to the federal government "to go and negotiate."

Within months, Finance Minister Jim Flaherty was back at the drawing board, announcing in his March budget that he intended to work with willing provinces to create a common regulator.

"The question is whether, in order to get the provinces to agree to participate, the structure originally proposed by the federal government will need to be adjusted to provide the provinces with an even greater role in governance," says Jeremy Fraiberg, a partner at Osler, Hoskin and Harcourt in Toronto, who specializes in securities law.

Mr. Fraiberg and Ms. Zordel expect a revised proposal may have more provincial flavour, but in the end, the initiative could be quite similar to the original proposal, provided the provinces agree.

"There is no reason why what the federal government proposed initially can't be achieved, provided that everyone is willing to co-operate," said Mr. Fraiberg.

However, to pass constitutional muster, legislation to create the new structure would have to be passed by both Ottawa and the provinces, said Zordel and Fraiberg, expressing an opinion publicly shared by several other commentators who have followed the issue.

Also, the provinces have to be involved in up-front negotiations, as well as have a voice in the body that will oversee a new, common regulator.

Ms. Zordel envisions the regulator taking the form of a Crown corporation, as contained in the initial proposal, which has responsibility through "some sort of mechanism" agreed upon by the provinces and Ottawa. She suggested, for example, the provinces could pass legislation delegating power, in exchange for having a voice in regulatory oversight.

Mr. Fraiberg asserts that the long-standing idea of regional regulatory offices could also become a reality in a new co-operative venture.

Mr. Flaherty told the Globe and Mail and the Financial Post editorial boards in April that he was setting a one-year deadline to come up with a new proposal. He asserted in the Financial Post that "there is a critical mass of support" across the provinces and territories to try to devise a national securities regulator within the parameters set out by the Supreme Court of Canada.

He also noted the provinces were more amenable to the idea, particularly Alberta, whose new premier, Alison Redford, showed a willingness to negotiate. The latest annual report from the Alberta Securities Commission affirms Alberta is prepared to work toward a more national model.

There have been suggestions that holdout provinces may be more open now that they know Ottawa does not have the constitutional power to unilaterally impose a regulator, which had sparked fears that the provinces would be giving away too much in the ongoing tangle over federal-provincial powers.

"Ironically, even though the federal government now has less leverage to impose a deal following the Supreme Court ruling, the provinces may be more willing to participate in a joint federal-provincial scheme," Mr. Fraiberg wrote in June report for the C.D. Howe Institute. "The provinces will be bargaining from a position of greater strength, since they will not be perceived as capitulating to federal demands if they agree to co-operate with the federal government."

Mr. Flaherty has repeatedly asserted that Canada is an international outlier because it is the only industrialized country without a national regulator. He has publicly decried the fragmented provincial approach as an "embarrassment" that deprives Canada of a national voice on the international stage.

The federal government's proposed 2010 legislation would have regulated individuals and businesses involved in the securities industry. The failed proposal also called for broad economic policy making.

Critics have maintained individual provincial and territorial regulators are more responsive to local investors and market conditions.

The common system, as initially proposed, would be voluntary, allowing strong opponents, namely Quebec, to opt out. Ms. Zordel said that would be a disappointment, but not a dealbreaker. She pointed out that Quebec, for instance, does not participate in the Canada Pension Plan.

While Mr. Fraiberg and Ms. Zordel suspect the federal government is setting its sights on an arrangement similar to its 2010 proposal, other legal analysts believe a common regulator would only be politically palatable to some provinces if it had a significantly stronger provincial bent.

Jeffrey MacIntosh, a University of Toronto law professor who holds the Toronto Stock Exchange Chair in Capital Markets Law, has called for a regulatory system run by the provinces. In an opinion piece published earlier this year in the National Post, he suggested that the federal government could sign on to a provincially constituted "multi-jurisdictional regulator."

Janice Tibbetts is a freelance journalist in Ottawa