The federal government is one step closer to creating a Canadian national securities regulator with the recent launch of the Canadian securities regulator transition office, but not everyone is on board with the initiative.

The Quebec government, which has continuously expressed its opposition to a single national regulator, was quick to announce that it will take legal action in Quebec’s Court of Appeal regarding the federal proposal to regulate trading in securities.

The creation of a national regulator raises a number of issues and many uncertainties, says Louis Morisset, superintendent of securities markets with the Autorité des marchés financiers, in an email response to Investment Executive’s questions: “Nothing shows how a single regulator would improve the securities regime in Canada.”

Quebec is not alone. Regulators from both Alberta and Manitoba have also voiced their concerns about a national regulator.

“We have a system in place that works and is recognized as one of the best in the world,” says Bill Rice, chairman and CEO of the Alberta Securities Commission. “The proposed changes don’t appear to present any advantages for securities regulation in Alberta and [have] the potential to damage effective securities regulation in Alberta.”

Although Rice doesn’t know which specifics that have been proposed will eventually come into play, he says there are a number of risks for effective regulation in Alberta that could occur, including:

>loss of control over enforcement strategies and priorities in the province;

> loss of the ability to suit regional interests;

> loss of accessibility for Albertan market participants to be real decision-makers in securities regulation in the province;

> imposition of another layer of bureaucracy on top of the ASC.

“There would be a huge dislocation, distraction and serious potential,” Rice adds, “for the loss of good, strong, experienced people in the regulatory field here in Alberta.”

These are all considerations the transition office team may take into account as it works toward the July 12, 2010, deadline to deliver a transition plan to move to a single securities regulator from the current system of 13 provincial and territorial regulators. Until that time, the office will run an advi-sory committee composed of representatives of each participating province. The transition team is also working with the federal departments of Finance and Justice to draft a Federal Securities Act, which would establish the national regulator.

Doug Hyndman, who is on a three-year leave as chairman of the B.C. Securities Commission, has been appointed to head the transition office as chairman and CEO on a full-time basis. Although Hyndman had opposed the idea of a national securities regulator in the past, he says, he has always taken the position that it is it up to governments to decide on the appropriate structure for regulation and that, as a regulator, it is up to him to work with the chosen system to make it effective in serving Canadians.

Hyndman says his new job is “a big change from what I have been doing, and it is certainly a great opportunity to do something at this stage in my career that can make a difference.”

Joining Hyndman’s executive team is Bryan Davis, chairman of the Ottawa-based Canada Deposit Insurance Corp., who was appointed as vice chairman of the transition office; and Larry Ritchie, vice chairman of the Ontario Securities Commission, who was appointed as the transition office’s executive vice president and senior policy advisor.

The next step for the transition office is to establish the legislative transition from provincial to federal jurisdiction, as well as the enforcement transition provisions for cases that are already in progress, says Tom Hockin, chairman of the Expert Panel on Securities Regulation that recommended the creation of the national regulator in mid-January.

Hockin adds that the transition office will also need to establish an appropriate balance between independent decision-making at the local level and the need for national standards. Issues such as human resources, including salary structure and employee locations, will also need to be reviewed.

“The complexity of working through the provincial commissions to get them to consolidate and to have a smooth parallel with the offices that want to stay out [of the national regulator] is great, as well as the continuing role of self-regulatory organizations,” says Hockin. “None of these things are deal-breakers, but they are issues that the transition office will have to work on over the year.”

@page_break@Among other things, the Expert Panel had called for a decentralized national regulator — to be called the Canadian Securities Commission — with a single head office and several regional offices, each run by a vice chairperson of the new commission. The panel also recommended introducing an independent adjudicative tribunal, giving investors a greater voice in policy-making, adopting a more principles-based model designed to deliver more proportionate regulation, and imposing performance standards on the new regulatory body.

Many of these recommendations pose issues for some provinces. The AMF’s Morisset says the structure proposed by the panel seems overly complex and there are no assurances that a single regulator with regional or local offices in each province would generate the same economies of scale compared to the current system. The AMF is also concerned that individuals at the head office responsible for policy development would turn a blind eye to the concerns of market participants in Quebec.

“Although the Hockin report proposes the establishment of regional offices,” Morisset adds, “there is no indication that these offices would take part in regulatory policy decisions or would have the opportunity to influence such decisions.”

Prior to Hyndman’s appointment to the transition office, he also chaired the Canadian Securities Administrators’ passport steering committee, overseeing a system that consists of one set of harmonized regulatory requirements to allow a market participant access to markets in all passport jurisdictions while dealing with only its principal regulator. Every province and territory approved of the system except Ontario.

“We are trying to build on the work that has already been done by the CSA,” Hyndman says. “ We want to build on that and, obviously, take it a step further to streamline the regulatory process.”

But others are quite happy with the passport system.

“Despite what the detractors say, the current passport system is an effective approach,” Morisset says. “It is a framework that is suitably adapted to the realities of the Canadian markets and, had Ontario opted in, would have been tantamount to a single regulatory system. It would have been worthwhile to evaluate the effectiveness and benefits of the passport system before seeking an alternative solution.” IE