When the federal government revealed its latest vision for a national securities regulator this past autumn, it made a show of inviting all of the provinces to join the party, along with initial invitees British Columbia and Ontario. Thus far, however, none of the others have returned their RSVPs.

The so-called “co-operative regulatory model” envisioned by the feds aims to get around the historical provincial resistance to national regulation by avoiding coercion and offering the provinces the opportunity to join the effort voluntarily.

To get the ball rolling, the federal government unveiled a preliminary agreement with two of the biggest jurisdictions already on board (B.C. and Ontario) – in the hope that enough others would decide to join, creating a “critical mass” that would eventually persuade all of the provinces to sign up.

That initial deal set this past Jan. 31 as the deadline for finalizing a memorandum of agreement (MoA) that would set out the terms and conditions of the new co-operative system, to be signed by each of the participating jurisdictions. Yet, at this point, the list of participants remains unchanged from the initial cast of B.C., Ontario and the feds.

At Investment Executive‘s press time, the deadline was still about a week away. But Jack Aubry, chief of media relations with the Department of Finance Canada, had nothing to report in terms of any other provinces joining the effort. For now, he notes, “B.C., Ontario and federal officials are working closely to complete the drafting of the necessary legislation and a memorandum of agreement for the establishment of the co-operative capital markets regulatory system.”

In addition to the Jan. 31 deadline to get an MoA signed with the participating provinces, the initial deal envisions publishing draft rules by March 31 and reaching agreements with each of the participating provinces to integrate their individual regulators into the new authority by May 30. The deal also aims to have federal legislation, and complementary provincial legislation, enacted by the end of this year, with the ultimate goal of launching the new regulator by July 1, 2015.

The current players are “mindful” of the deadlines set out in the initial agreement, Aubry notes, adding that they are “very focused on the deadline of July 1, 2015, for launching the co-operative regulator.”

Some in the financial services sector are hopeful that this approach will finally succeed in breaking the back of provincial opposition to a national regulator. For example, ITG Canada Inc. predicts in its forecast for the coming year that as many as five provinces and the three territories will opt into the federal plan in 2014. And, if that were to happen, ultimately all of the others will feel compelled to join as well, the ITG report suggests: “We are optimistic that the new approach will result in a fully adopted national regulator by [the] end of 2016.”

Separate from the question of whether – and, if so, when – any other jurisdictions will decide to join is the issue of what constitutes “critical mass”; it’s not clear how many provinces need to sign on for the feds’ approach to work. In fact, it may be that the federal government itself doesn’t know.

Initially, there was some hope that several of the Atlantic provinces, and perhaps Saskatchewan, would be prepared to join. So far, none of them have; however, that’s not to say they won’t, as the idea still is under review. It may be that rather than participating in the drafting process, the other provinces will be content to the let the initial participants do all the spadework and will make their decisions on whether to join once the vision is more concrete.

Next: Saskatchewan still reviewing agreement
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Saskatchewan still reviewing agreement

Noel Busse, senior communications consultant with Saskatchewan’s Ministry of Justice, says that province still is reviewing the agreement between Ontario, B.C. and the federal government “to determine whether joining a co-operative securities regulator will best serve Saskatchewan’s investors and capital markets.”

Although Saskatchewan’s provincial government is interested in “improvements that protect investors and help companies obtain the capital they need,” Busse says, “no decision has been made to join the new regulator.” And, he notes, there’s no specific deadline for that decision.

At the eastern end of the country, a spokesman for Nova Scotia’s minister of finance is similarly noncommittal, and New Brunswick’s government declined to respond to requests for comment.

For now, what’s clear is that the two other big provinces in Canadian securities regulation – Alberta and Quebec – remain the most vocal opponents of the feds’ plan. Quebec Finance Minister Nicolas Marceau has promised to challenge the federal initiative in court.

Similarly, Alberta’s skepticism seemingly has grown as well. Jessica Jacobs-Mino, acting press secretary for Alberta’s minister of finance and assistant to Doug Horner, president of the Alberta Treasury Board, says that the province has “serious concerns with aspects of the agreement presented by the federal government, such as federal veto powers. [However,] we are committed to harmonizing and streamlining our legislation, rules and regulation by working with our provincial and territorial counterparts.”

The chief alternative to the federal plan remains sticking with, and trying to improve, the existing provincial system. The provincial ministers responsible for securities regulation – except for B.C. and Ontario – most recently met in late December. In the wake of that meeting, this council issued a communiqué stressing that they have agreed to keep working toward their own MoA for a plan to enhance the existing system.

That council imagines its own co-operative regulatory model – and it doesn’t look that different from the federal proposal, in that it contemplates creating common securities legislation and improving ministerial oversight. However, it aims to preserve more provincial authority.

To muddy the waters further, the council also now sees the creation of a new national systemic risk committee to monitor and mitigate systemic risk in the financial services sector – the one area in which the federal government believes it can claim jurisdiction, in line with the Supreme Court of Canada’s decision in 2011.

That’s certainly the direction that Alberta intends to take, Jacobs-Mino suggests: “We look forward to continuing with the good work of the Provincial-Territorial Council of Ministers of Securities Regulation, recognizing that continuous improvements to the Canadian securities regulatory system are necessary to meet the needs of investors and the capital markets.”

The council intends to finalize an agreement crystallizing its plan sometime this spring.

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