2008 year in review, part 4 of 8.

It will be different this time. Or at least that’s what Ian Russell is hoping when the Expert Panel on Securities Regulation in Canada presents its recommendations to the federal and provincial governments, expected on Jan.12 in Vancouver. Russell, president and CEO of Toronto-based Investment Industry Association of Canada, says the panel could settle the long debate over whether to create a national securities regulator once and for all.

“With this financial crisis, the timing of the panel’s recommendations couldn’t be better,” says Russell. “There’s been a strong call for Canada to have a single regulator, with markets becoming more globalized. The panel has also been mandated to create a transition path to creating a single regulator. That’s something different than other studies, which gives confidence they will meet their goal.”

Assembled by federal finance minister Jim Flaherty on Feb.12, 2008, the panel was given until the end of 2008 to construct a national model for securities regulation after consulting with market participants across Canada and abroad. The panel is led by Tom Hockin, former Minister of International Trade and former chairman of the Investment Funds Institute of Canada.

Canada’s regulatory system is composed of 13 provincial and territorial securities commissions, which Ottawa says impedes investment activity. Canada is the only G-7 country without a unified securities regulatory body. Several previous efforts to create a national commission failed primarily because of provincial concerns about loss of jurisdiction and revenue.

Although the panel is silent about what model it will propose in January, its interim report released on Aug. 28 says, “Most stakeholders support some from of pan-Canadian regulatory structure.” After the panel met with more than 100 Canadian market participants, as well as industry stakeholders from the U.S. and Britain, it stated in its report: “Several investment dealers noted that Canada’s complex regulatory structure … is a disincentive for foreign companies to list on Canadian Exchanges. As one remarked, ‘You don’t dare tell them in the first meeting what they have to do to list in Canada’.”

When stakeholders were asked about how Canada could move from a choir of 13 regulators into a single entity, they used the Financial Services Authority in Britain, and the Australia Securities and Investment Commission, as examples of how the such difficulties could be overcome.

As the panel prepared its report, work continued on the passport system of regulation developed by the provinces — with the notable exception of Ontario, which favours a national commission — and the territories. Under this system, the participants agree to respect and adhere to each other’s jurisdictional rules. While the Vancouver-based Canadian Securities Administers, an organization dedicated to harmonizing the passport system, has launched an effort to streamline listing processes, it has yet to be implemented.

The panel is examining the passport model as part its work. Some stakeholders noted that one advantage of such a system is that it allows for “regionally distributed authority,” where regulators can preserve the rules of operating in niche markets, a quality that isn’t as easy to achieve with a national regulator.

There have been various attempts to establish a national securities commission, starting with the recommendations by the Royal Commission on Price Spreads in 1935. Attempts to unify provinces on regulation carried on over the years with various committees and reports. Former prime minister Jean Chrétien attempted the task twice. In recent years, the federal Conservatives attempted to move ahead through the Crawford Panel, led by Osler Hoskin & Harcourt LLP counsel Purdy Crawford and with the Wise Persons’ Committee in March 2003, led by Michael Phelps, former chairman and CEO of Calgary-based Westcoast Energy Inc., which both recommended a national commission. In general, these efforts have foundered on provincial objections — Quebec and, to a lesser extent, British Columbia would not relinquish control to a national regulator.

The Hockin panel heard from stakeholders on a number of concerns such as how to compensate provincial and territorial regulators for lost revenues resulting from the amalgamation, as well as job security for workers in these jurisdictions.

The stakeholders also had thoughts about a governance structure for the national regulator to follow. The most popular structures mentioned were those of Canada Revenue Agency and the Canadian Pension Plan Investment Board, which was cited by the Crawford Panel in its1996 final report. In the CRA model, governance falls to a single agency, with a board of management, made up of provincial and territorial leaders from the public and private sectors. As for the CPPIB model, it works by first selecting a geographically representative nominating committee that is then responsible for electing a council of ministers to over see regulation nationwide.

@page_break@Among the Hockin panel’s line-up of financial all stars are Ian Bruce, CEO of accounting firm Peters & Co. Ltd and a director of IIAC; Denis Desautels, former auditor to the government; Dawn Russell, former Dean of Law at Halifax-based Dalhousie University and Crawford Panel veteran; and special advisor NO COMMA Peter Hogg, legal advisor to the feds AND professor emeritus at Osgoode Hall Law School in Toronto.

IE