In today’s federal budget, the new Conservative government reiterated the federal preference for a common securities regulator, and indicated that this priority will fall under its overall effort to realign federal and provincial responsibilities.

The budget highlights Finance Minister Jim Flaherty’s intention to engage in further discussions on the securities regulation issue with the provinces. It also outlines the model that the government hopes to see. “The government believes that Canadians would best be served by a common securities regulator that administers a single code, is responsive to regional needs and has a governance structure that ensures broad provincial participation,” it says.

The mention of securities regulation in the budget represents an indication of the government’s interest in the matter and its preference for the design it envisages. It will also form part of an overall effort to realign federal and provincial responsibilities.

Along with the budget, the government released a discussion paper on “restoring fiscal balance” in Canada. In his speech, Flaherty said that the government considers fiscal balance to mean that the two levels of government are “able to focus on their core responsibilities.”

Among the bigger equalization issues this consultation will consider, it also pledges to look at ways to strengthen the economic and social union and improve competitiveness, including “exploring ways to enhance tax harmonization and establish a common securities regulator.”

Flaherty plans to meet with the provincial finance ministers later this spring to begin discussions. A first ministers meeting will be held in the fall. And, he says, next year’s budget will propose the funding and legislation required to implement any proposals.

In last year’s budget, the prevailing Liberal administration promised significant progress toward an improved securities regulation system by the end of 2005. But meetings between the federal Finance department and the provinces apparently went nowhere.

So far, the provinces, with the exception of Ontario, have continued to work toward implementing a passport system for securities regulation. Ontario continues to favour a single, national regulator.

The budget recognizes the provincial passport initiative, but indicates that the federal government would prefer something more solitary. “The provinces and territories have made progress in improving the current system of securities regulation in Canada by narrowing regulatory differences and streamlining the administration of securities laws,” it acknowledges, adding, “To maximize benefits for investors and issuers and strengthen the federation, intensified efforts are required.”

A possible model for a common regulator with regional input was proposed by the federal wise person’s committee in 2003. A similar model was proposed by a panel convened by Ontario and headed by Purdy Crawford, which reported in late 2005.

“A common regulator would foster more responsive policy making, improve market efficiency, eliminate duplication, provide common standards of investor protection and strengthen Canada’s voice in international discussions on regulatory standards. It would also significantly enhance capacity for effective, integrated enforcement in capital markets across Canada,” the budget explains.