Being a regulator is in-herently a thankless job. But it’s made all the tougher by the whims of the politicians to whom regulators must answer, particularly as legislators don’t seem to understand the task that well or care much about it.

For all the grief that regulators get for their performance, they are often doing the job with a handicap. When they spot opportunities to improve, reform initiatives can flounder without support from their political masters. Alternatively, regulators can be pushed into ill-advised reforms by governments enamoured of the latest fads in public policy. This problem is particularly acute in the fragmented Canadian system, in which each provincial regulator has its own government and legislature to which it must answer.

Ideally, this diversity of oversight would keep regulators on their toes, prodding them to innovate in order to ensure their jurisdiction is as attractive a venue for capital as possible. But, in reality, the capital markets are often far from the minds of governments, lost in the pressing issues they have to tackle. That’s why it was surprising that the latest federal budget included an entire document dedicated to capital markets strategy.

One of the cornerstones of that strategy is the federal government’s push for a single securities regulator. Federal Finance Minister Jim Flaherty is promising to introduce a bill next year that would allow for the creation of what is now being called a “common securities regulator” that would follow a principles-based approach to regulation rather than a “national” regulator.

This common regulator would be modelled on the blueprint put forward by the panel chaired by Purdy Crawford, securities lawyer at Osler Hoskin & Harcourt LLP in Toronto, that aims to preserve provincial oversight of securities regulation with a council of provincial ministers that oversees the common regulator while doing away with the separate agencies in each jurisdiction.

Despite Flaherty’s persistence, it seems unlikely that the idea of a common regulator is going to have any legs, absent a strong majority government in Ottawa with the stomach for a constitutional challenge.

And apart from Ontario, the other provinces largely oppose the idea. Quebec has been a steadfast opponent of a common securities regulator; some of the other provinces have wavered on the notion over the years. But at the present time, there appears to be little support for a common regulator outside of Ottawa and Toronto.

B.C. Securities Commission chairman Doug Hyndman insists that it’s time to abandon the idea that a single regulator would be a panacea for all the Canadian regulatory system’s ills and focus on improving the system within its present structure. “We will be implementing real reform through the passport system,” he says, “while others dream of mythical creatures that have no faults.”

Hyndman also scoffs at the idea that a new common regulator could simply shift the system to a principles-based approach. “I am in favour of more principles-based regulation, but implementing that approach involves more than just writing rules differently,” he says, “What’s more important is developing the necessary organizational culture. I doubt that the federal government has given any thought to that type of implementation issue.”

Although the adoption of a new regulatory model requires the unlikely co-operation of the provinces, so does the task of making significant improvements to the current system. Getting that co-operation often seems harder than it should. If a single regulator is ever adopted, it’s not clear that it should preserve one of the present system’s greatest weaknesses — provincial political oversight.

For example, regulators spent several years crafting a uniform securities law that would have enabled all the provinces to have the same basic legislation. However, once it got to the implementation stage, the initiative withered and died from legislative indifference.

Similarly, under the direction of a government intent on cutting the regulatory burden, the BCSC came up with an innovative regulatory model that would have introduced some novel concepts to the system. Once again, the legislation got to the brink of implementation before it was dropped.

In both of those cases, potentially significant reforms died at the hands of provincial governments. Ontario has an oversight mechanism that should facilitate incremental improvement to the regulatory system, but that’s faltering, too. The cornerstone of legislative oversight of securities regulation in Ontario is mandated reviews to be carried out every five years. That process is well behind schedule; and much of the work of the initial review has fallen by the wayside.

@page_break@The first review, also led by Craw-ford, delivered its final report in the spring of 2003. An all-party standing committee on finance and economic affairs should have held hearings on the findings of the review and reported back to the legislature that fall. However, a federal election intervened and the hearings didn’t take place until the summer of 2004, with a report produced that fall — whittling the Crawford report’s 95 recommendations down to just 14.

The next five-year review committee was due to be appointed at the end of 2004, but the Crawford report recommended that it be appointed five years after the previous committee’s final report is published. The standing committee’s report echoed that call, but suggested trimming the gap to four years and recommended that the next committee be appointed in May 2007, with an interim report due in May 2008 and a final report in early 2009.

Despite accepting the recommendations of the standing committee’s report and pledging to follow through on them, the Ontario government has yet to appoint the next five-year review committee. A spokesman for the Ministry of Finance says that it plans to do so early in 2008.

The standing committee also made several other significant recommendations on which the government has failed to follow through — including establishing a task force to review self-regulatory organizations, separating the Ontario Securities Commission’s adjudicative function and working with the OSC to develop a timely, affordable mechanism for investor restitution. It also recommended that the government report on its progress toward the new restitution mechanism by the fall of 2005. A quick progress report: none made.

Paradoxically, another significant recommendation that hasn’t been touched is the standing committee’s call for increased legislative oversight of the OSC. The committee found the current quality of oversight to be insufficient and recommended it be reviewed with an eye toward developing a new mechanism similar to the congressional oversight that the U.S. Securities and Exchange Commission must face.

A concern in the committee report was that the OSC has become increasingly unaccountable since its transformation into a self-funding agency. The committee’s report declared that, regarding legislative oversight, the status quo is “unacceptable.” Yet, it remains unchanged several years later.

Despite these oversight failings, Flaherty maintains that a common regulator would ultimately produce better regulation. “We would make the regulation of our markets more responsible and accountable by creating a decision-making body that would co-ordinate the views of all jurisdictions promptly and fairly,” he told the standing Senate committee on banking, trade and commerce in early December.

The irony of Flaherty’s plan is that in an effort to win provincial support for the idea, he’s promising to keep the provinces on a job they don’t appear to be interested in doing. IE