It was probably not coincidence that the finance ministers of Quebec and Alberta waited until one day after their federal and provincial counterparts met in Prince Edward Island to discuss pension reform to formally denounce Ottawa’s planned national securities regulator.

In the quid pro quo world of federal/provincial diplomacy, gestures are as important as words. And we can be sure that federal Finance Minister Jim Flaherty read the joint statement from the two provincial finance ministers very carefully.

Quebec’s Raymond Bachand and Alberta’s Ted Morton jointly called on Flaherty to abandon his proposed Canadian Securities Regulatory Authority and simply amend the Criminal Code to protect investors.

The two objecting provinces argue that because Canada came through the recent worldwide financial crisis better than most countries, there is no valid reason to scrap the current system of 13 provincial and territorial securities commissions for one national regulator.

A day earlier, Flaherty had claimed to have reached a consensus with his provincial counterparts in P.E.I. to work toward increased payments and premiums under the Canada Pension Plan as the chief federal/provincial update to Canada’s retirement system.

Flaherty has not offered any timetable for changing the CPP or even much assurance that the plan will ever materialize. He also has been very vague about the extent of support for his plan — probably for good reason. Morton is already on the public record as an opponent of recasting the CPP.

To change the CPP, Ottawa will need approval from two-thirds of the provinces representing 67% of the population. That gives Quebec and Alberta huge leverage, and Ottawa may find itself having to choose between a reorganized CPP and a national securities regulator.

Indeed, Morton and Bachand have effectively linked the two issues by using their joint news conference about securities regulation to complain about a revamped CPP without definitively opposing it.

No doubt about it, Flaherty deserves a great deal of credit for getting this far in modernizing Canada’s balkanized securities regulatory system when so many before him have failed. But just as a new national retirement system is far from a done deal, so is a new national securities regulator.

Flaherty may have tabled a draft Canadian Securities Act in the Commons just before the summer break without much opposition federally. However, several issues will have to be overcome to ensure this bill does not wind up collecting dust like the Federal Securities Act of 1979 or an ill-fated memorandum of understanding between Ottawa and several provinces in 1994.

To begin with, up to this point, Flaherty has not had to deal with a provincial counterpart quite like Alberta’s Morton. This man is good copy, as they say in the media.

The debate over a single, national regulator has been bubbling away in Canada since the Rowell-Sirois Commission’s report of 1934, yet the general public has never really been engaged. Although a national regulator is widely supported on Bay Street, most of the investment industry has been content to let the politicians do the talking to avoid a quarrel with western and Quebec colleagues.

Morton seems to be aiming to make Ottawa’s plans a Main Street issue, and an inflammatory one at that, with claims that a federal securities law will, over time, undermine Calgary as the financial centre for the oil and gas industry.

Such a tactic is understandable, as it is a long shot that the Supreme Court of Canada would rule against a national system that would allow any province to opt out and maintain its own regulatory commission.

There is plenty of precedent in Canadian law for Ottawa and the provinces to delegate powers back and forth to each other. This is why Flaherty promptly referred his legislation to the Supreme Court for clarification on its constitutional status.

The two holdout provinces are also taking their case to their respective courts of appeal. But this is probably just a delaying tactic. The court of public opinion is the only forum the two provinces can count on to put down Ottawa’s proposed watchdog.

Morton has predicted that other provinces will be joining the Quebec/Alberta alliance. Whether that is true or not, private-sector groups in Quebec and Alberta, such as the Montreal Board of Trade and the Edmonton Chamber of Commerce, are joining the campaign to stop the proposed national regulator.

At the moment, Ottawa need not worry about the federal political landscape changing much in either province. However, both provincial governments are facing challenges to their political base. A fight with the feds has always been a good vote-getter in any province.

Ottawa and Ontario, as the leading proponents of a national regulator, are going to have to be very careful in building support without giving offence in Alberta and Quebec. There will also be some tough negotiations ahead.

Just because a federal initiative makes long-term policy sense doesn’t mean it makes political sense. IE