The first-ever meeting of the federal government and the provinces to discuss securities regulation was held Sept. 29. There was no brouhaha — they may all get together again some time — but no agreement. The feds didn’t get anywhere with their desire for a single regulator.

Finance Minister Ralph Goodale’s meeting with the provincial ministers responsible for securities regulation was first proposed in the last federal budget. At the time, the federal government pledged to get an agreement on a new and improved regulatory system by yearend. That looks very unlikely.

The best spin that Goodale could put on the meeting in Gatineau, Que., was that everyone in attendance got along. He called it “a good gathering” and said the sides agreed “this is not a one-shot deal. We should have further meetings … to pursue the issues and see where we can find common interest and common cause and move forward.” In summary, he declared it a positive, if modest, result.

However, the gathering changed no one’s view. The biggest capital markets jurisdiction, Ontario, remains committed to the idea of a single regulator, and awaits a report from Purdy Crawford, due at the end of October, proposing yet another model.
The feds see the appeal of a single regulator, too. The other provinces, however, have all signed onto and implemented much of the “passport” system, which preserves local autonomy while promising market players single-window access to the regulatory system.

Concurrent with the meeting, the pro-passport provinces issued a communiqué pledging to keep reforming the system and approving a work plan for the coming year. The memorandum of understanding the provinces signed in September 2004 imagined the adoption of the passport system this year, and more harmonized rules by the end of 2006.

“We’ve gained some momentum with this month’s improvements, and we will continue to make meaningful reforms to harmonize and simplify securities laws further across Canada,” Shirley McClellan, Alberta’s deputy premier and minister of finance, and chairwoman of the Provincial-Territorial Council of Ministers of Securities Regulation, said in the communiqué.

The participating provinces have demonstrated their commitment to keep securities regulation a cooperative effort by delivering the passport system more or less on time, but harmonizing rules will be a much bigger test. The MOU provides plenty of scope for preserving local differences, which could largely undermine the benefits of harmonized rules.

The upcoming Crawford report appears to be the next event to which regulatory reform watchers are tuned. Goodale reports that all the ministers are waiting to see what comes of that effort, and have committed to commenting on each other’s respective positions in writing, as a way to move the discussion forward. “We’re getting to that stage of really getting into the nitty-gritty of it,” Goodale says. “I think there is common agreement on the goals, and we’ll now do a pretty detailed examination of whether this proposal or that proposal or the other proposal advances this most progressively along the way.”

As if there weren’t enough proposals already — the passport system, a pan-Canadian regulator, the wise persons committee’s recommendations and whatever the Crawford committee comes up with — Bank of Canada Governor David Dodge has waded into the regulatory reform fray, as well. He is calling for uniform rules across the country and proposed three tiers of issuer regulation: one regime for large global firms, another for mid-caps and a third for small-caps.

“These different tiers of firms exist in all major provincial jurisdictions, and investors in every jurisdiction have similar needs,” he says. “So the key point is that, while the application of rules needs to take into account the size and complexity of firms, there is no need for different rules to be applied based on the province or territory of the issuer or investor.” Dodge stops short of saying that such a strategy should be delivered through a national regulator.

The notion of tiered regulation has been proposed before, and to some extent it is emerging in rules that contemplate exemptions, or longer implementation periods, for smaller firms. It’s more a question of substance, and the jurisdictions are still wrangling over structure.

Goodale has explained his ideal: “A national system that is efficient, cost-effective; that allows for consistency in terms of the rules and regulations that apply; that achieves uniformity in terms of enforcement and implementation; that has the ability to speak with one common voice to the world; that has the ability to adapt to changing circumstances and to do so on the basis of good, solid, common public policy. Those are the characteristics of the system we need.”

@page_break@Most of the provinces — and most important, Quebec, Alberta and British Columbia — are not convinced a single regulator is the way to get there. Yet Goodale insists that turf is not the issue. “This is not about jurisdiction. This is about having a system that delivers the goods for the nation in terms of strong capital markets,” he says. “The jurisdictional issues are, quite frankly, secondary.”

That may come as news to the provinces, some of which obviously have little appetite for change. “There’s lots of rhetoric about the perfect model, but the provinces are committed to doing what’s possible and to get real progress on the ground to improve two things: the ability for issuers to have access to all the capital markets inside of Canada and better investor protection,” Manitoba’s minister of finance, Greg Selinger,
told reporters before the meeting.

What the provinces have yet to acknowledge is the effect of a Byzantine provincial system on global capital flows. Although homegrown firms may be resigned to dealing with a jury-rigged system, it surely appears a mess to foreign players. Given Canada’s relatively small position within the global market, it seems self-defeating to preserve barriers to entry.

While the provinces don’t appear to be hearing the concerns of foreign players, the feds certainly do. “When you’re a relatively small part of a very big, tough, competitive picture, it’s important to be a really good player — and that includes the infrastructure of the system. We really need to be world-class,” Goodale says.
The question is how to get there. IE