Herding cats: Provinces, feds still at odds over national regulator

In late June, the Provincial-Territorial Council of Ministers of Securities Regulation – which includes all of the provinces and territories apart from Ontario – announced that they have agreed to create a memorandum

of agreement (MOA) to establish a “network-based co-operative regulatory model.”

The agreement, expected to be finalized at a meeting on Sept. 23, would feature: common securities legislation and rules, which still allow for some local variation; a Council of Ministers that will take a more proactive role in policy development and oversight; and, steps to address the need to manage systemic risk.

In addition, the provinces’ ministers say they intend to explore the ideas of formalizing the legal structure and responsibilities of the Canadian Securities Administrators (CSA).

Also, in mid-July, the CSA issued a business plan for the first time, sketching out its strategy for the next three years. That move seems to signal a desire to be seen as more of a unified front than as a loose collection of individual agencies.

The provinces stress that they would like Ontario and the feds to participate in their process to reach an agreement on a more robust provincial regulator model. But neither Ontario nor Ottawa is exactly embracing the invitation.

“Regarding the participation of Ontario or the federal government,” says Jessica Jacobs-Mino, assistant to Doug Horner, Alberta’s finance minister and president of the Alberta Treasury Board, “going forward, all I can say at this point is that talks are ongoing.”

Doug Hyndman, chairman of the Canadian Securities Transition Office (CSTO) – which Ottawa created to shepherd the creation of a national securities regulator before the Supreme Court of Canada’s decision torpedoed the effort in 2011 – suggests that the provinces’ plans are insufficient.

“We are encouraged that the Provincial-Territorial Council of Ministers and the CSA recognize the need to improve securities regulation,” Hyndman says. “But more improvement is required than their plans would appear to contemplate.”

Indeed, some of the elements of the provinces’ vision have been tried without success. For example, the CSA already went through the process of attempting to create a set of common securities laws with allowances for local variation. However, despite a great deal of diligent work, the Uniform Securities Law project ultimately floundered when the individual provinces neglected to enact related legislation.

Moreover, there doesn’t appear to be any great hunger for a more formal CSA. Bill Rice, chairman of the CSA, as well as chairman and CEO of the Alberta Securities Commission, suggests that the idea has been kicked around, but it’s not close to happening: “The CSA has been discussing, for some time, the potential advantages, logistics and questions relevant to a formalization of our structure. Significant questions remain outstanding, and there is a wide range in levels of interest on the part of jurisdictions.”

Ontario’s finance minister, Charles Sousa, indicates that he would be willing to attend the provincial ministers’ meeting on the condition that they first put forth a proposal that meets Ontario’s vision for regulatory reform, which was set out in Ontario’s most recent budget.

The model outlined in Ontario’s budget suggests elements that would appear to jibe with what’s envisioned by the other provinces, including an independent board to oversee the regulator that is accountable to a council of ministers. However, Ontario’s model also includes features that are sure to turn off the other provinces, such as insisting that the head office be in Toronto. The model also creates a voting structure for fundamental changes to the regulator “that recognizes the significant role of jurisdictions with major capital markets.”

Given that 80% of market activity takes place in Ontario, according to the Ontario budget, and more than half of the securities sector’s jobs and revenue are in Ontario, that province clearly visualizes a dominant role for itself in any new regulator.

Indeed, despite the other provinces’ reluctance to embrace an Ontario-dominated model, that appears to be what Ontario still has in mind. Says Susie Heath, Sousa’s press secretary: “Ontario strongly believes that this proposed framework would offer real benefits, in all parts of Canada, to business raising capital and to investors. And it would further enhance Canada’s international reputation for excellence in financial regulation.”

Heath adds that Sousa “would consider attending the next council meeting if there is a concrete proposal brought forward prior to the meeting that addresses the principles in [Ontario’s] 2013 budget and would result in meaningful change to our securities regulatory system.”

A statement from Sousa’s office added: “Ontario remains committed to working with the federal government and other interested provinces to establish a common co-operative securities regulator. We have been reaching out to other provinces and the federal government to move forward with this new model, [which] builds on Canada’s regional strengths while ensuring integrated, effective and consistent regulation.”

The federal government also is still clinging to its vision for a new regulatory model, which was outlined in its most recent budget back in March.

“The [federal] government’s preferred approach to making meaningful progress,” says Jack Aubry, chief of media relations and consultations with the Department of Finance Canada, “is through a common securities regulator established co-operatively with provinces and territories.”

Aubry stresses that the federal government would support a common regulator that has certain key features, including that it: administers a single set of rules; is operationally independent and self-funded through a single fee model; and preserves the elements of the current system that work well, such as maintaining local offices.

Within a model that meets those criteria, Aubrey adds, the federal government “would be prepared to delegate the administration of its own securities legislation to a common securities regulator if a critical mass of provinces and territories were willing to do the same.”

Adds Hyndman: “We are hopeful that the Council of Ministers’ initiative reflects a similar desire to work co-operatively with the federal government.”

If not, Aubry reiterates the federal government’s position as outlined in the budget, noting that “if a timely agreement” with the provinces cannot be reached, the feds intend to propose legislation to take responsibility for the areas of securities regulation that the Supreme Court decision had suggested could fall under federal jurisdiction – most notably, systemic risk.

Yet, it remains unclear how that would work, and how it would fit with the vision being pursued by the provinces.

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