As Finance Minister Jim Flaherty promised when the Hockin Report was released, the federal government is pledging to go ahead and create a national securities regulator.

In today’s budget, the Conservative government outlined the steps it plans to take on its path toward the creation of a national regulator. All the provinces will be invited to participate in the effort that, the government stresses, will respect “constitutional jurisdiction” and “regional expertise.”

Many provinces have long resisted calls for a national regulator, claiming that securities regulation falls under provincial jurisdiction — and they are not willing to give up that jurisdiction.

Since the Hockin Report was released in mid-January, Alberta, Quebec, Manitoba and New Brunswick have all voiced varying degrees of resistance to the idea. Ontario has been the staunchest supporter and B.C. has indicated that it may be willing to participate, subject to negotiation.

Speaking on a background basis, a Finance department official declined to name other provinces that may be on board with the federal plan, although the official did note that the government is proceeding on the basis that the national regulator will be a voluntary initiative. At this point, it is not adopting the idea put forward in the Hockin Report of allowing issuers to opt-in to the proposed national body; nor will it try to seize jurisdiction.

To get a national regulator operational, the federal government plans to establish and fund a transition office, comprised of participants from the willing provinces. It will have a year to come up with a transition plan. The budget notes that the plan “should ensure that the resources of securities regulators from willing provinces and territories are effectively integrated” so that, among other things, the existing regulators will be able to find jobs at the new national regulator. Further details of these plans will be announced shortly.

The budget sets aside $154 million for the creation of the new regulator, to be spent in the coming year. That will include funding for the transition team and further work on the model, and for the possibility that the government may have to compensate certain provinces for ceding their jurisdictions (namely those in which regulation is a source of provincial revenue). Indeed, the budget indicates that the government “is prepared to discuss… financial arrangements” with participating provinces.

The government will table a common securities act within the year; it will function as the new regulators’ enabling legislation. It will cover the basic elements set out in the Hockin report, including: introducing an independent adjudicative tribunal; giving investors a greater voice in policymaking; adopting a more principles-based model designed to deliver more-proportionate regulation; and, imposing performance standards on the new body. The new regulator will also have financial stability as part of its mandate.

The budget does not explicitly mention some of the other investor-friendly initiatives that were proposed in the Hockin Report, such as the establishment of an industry-funded investor compensation fund, or the ability for the regulator to order restitution. Finance indicates that these kinds of details will be subject to negotiation with willing provinces.

If the government’s plans — as conceived in the budget — are realized, it will have a common act and a transition plan within year. But the Finance department is not willing to hazard a guess as to when a new regulator will actually be up and running, although one official notes that the Hockin Report suggested it will probably take three years.

IE