The supreme court of Canada may have dealt a crippling blow to the federal government’s plans for a national securities regulator, but Ottawa is still hopeful that it can craft a solution that fits within the SCC’s ruling.
In the wake of the SCC’s decision declaring the proposed legislation to create a national regulator to be unconstitutional — effectively shooting down the feds’ vision of a single national regulator — proponents of national regulation insist that the ruling leaves plenty of room for the effort to succeed.
The possibilities include the feds taking the case back to the SCC to seek approval on different grounds. Or the feds could try to create a role for a national regulator that respects the boundaries set out in the SCC’s decision.
It looks like the feds are planning to follow the latter path; they don’t appear to be prepared to take another kick at the can using their original proposed legislation.
Federal Finance Minister Jim Flaherty has indicated that he intends to follow the SCC’s decision — which had ruled that much of the scope of securities regulation properly falls under provincial jurisdiction — while also trying to develop a national regulator with authority over the areas that the SCC has suggested may be federal responsibilities, such as systemic risk.
Flaherty’s office indicates that Ottawa is now working with the provinces to create a Canadian securities regulator “that respects the recent Supreme Court decision on the matter.”
According to a transcript of Flaherty’s remarks made in January at the World Economic Forum in Davos, Switzerland, he has accepted the SCC’s opinion that the bulk of securities regulation falls under provincial jurisdiction.
However, he noted, “[The SCC] also said that there is an area of federal jurisdiction, including national standards and systemic risk. So, I hope — and we’ll see — that we can make an arrangement with the provinces to proceed with a Canadian securities regulator to deal with those aspects of the securities market that are interprovincial and global, that are applied beyond Canada.”
Although this position may not be what ardent supporters of national regulation are hoping to hear from the feds, it’s not the sort of surrender that proponents of the existing regulatory system want to see, either. And it appears that plans to push ahead with some sort of national regulation will continue to stand in the way of the provinces going all in on the current system.
The heads of the various provincial securities regulators had met, for the first time since the SCC decision, in Vancouver in late January. It doesn’t appear they had come away from that session with any new commitment to making the existing system as effective and efficient as possible.
The biggest obstacle to improving the current system remains Ontario’s refusal to sign onto the passport system that all the other provinces have joined.
This position remains a point of division within the Canadian Securities Administrators, the umbrella group of provincial regulators.
Bill Rice, chairman of the CSA and chairman and CEO of the Alberta Securities Commission, reports that the heads of the various provincial regulators “have had a very open and encouraging discussion of the role for the CSA” at their meeting in Vancouver. However, Ontario still hasn’t committed to joining the passport system.
Nevertheless, Rice says that he views the dialogue “to still be open,” pending the direction taken by the Ontario government.
For now, Ontario appears to be clinging to its hopes for a national regulator. Says Darcy McNeill, on behalf of Ontario’s finance minister, Dwight Duncan: “Ontario continues to support the notion of a national regulator, particularly as it pertains to matters such as systemic risk — which was outlined by the court. We look forward to continuing to work with our federal and provincial counterparts to achieve such goals.”
In the meantime, the feds are trying to get a handle on just what the role might be for a national regulator within the confines of the SCC’s decision. Flaherty suggests that the derivatives market is one area that could fall under federal authority. He also points to systemic risk issues, citing the collapse of the market for non-bank-sponsored asset-backed commercial paper in 2007, which had affected investors in several provinces.
“It’s very difficult to deal with any significant financial issue in Canada,” Flaherty says, “without the involvement of the government of Canada, because so much of the financial world applies to many provinces and territories, not just one.”
Flaherty adds that he already has had discussions with some of the ministers responsible for securities regulation in some provinces. So far, the reception he’s received from the provinces has been “fairly good,” he says, and the provinces do recognize that no one has exclusive jurisdiction in this area. IE