The federal government’s case for establishing a national securities regulator has received a counterpunch from the side of the debate that says, “It ain’t broke, so don’t fix it.”

This blow comes from Pierre Lortie, former CEO of the Mon-treal Exchange and currently a business advisor in Montreal to law firm Fraser Milner Casgrain LLP. Lortie has released, through Calgary’s School of Public Policy, a 50-page report entitled Securities Regulation in Canada at the Crossroads.

In the paper, Lortie dissects the federal government’s initiative piece by piece on the grounds that the existing system of 13 provincial and territorial securities regulators functions much like a national regulator anyway.

“The arguments made to justify the takeover of securities regulation by the federal government,” Lortie writes in his report, “lack a solid foundation and, too often, misrepresent the situation.”

While Lortie’s report acknowledges that Ottawa’s proposal is based on a belief that a national regulator would be more efficient, it continues: “That is not the picture one can honestly draw of the Canadian securities regulation regime.”

The report notes that matters related to protection of investors are “within the constitutional domain of the provinces” and that the provinces have been engaged in securities regulation for eight or nine decades. Further, the report warns that constitutional change cannot be contemplated without strong and compelling reasons.

AMMUNITION

Lortie’s report is seen as ammunition for the Quebec and Alberta governments, who are opposed to the federal government’s attempt to create the proposed Federal Securities Regulatory Authority.

The report is likely to stir the pot among large segments of the financial services industry that support the proposed transfer of jurisdiction for securities regulation to the federal government. This contingent believes it would enhance the efficiency and competitiveness of Canadian capital markets, reduce regulatory costs, strengthen enforcement and improve Canada’s image and influence internationally.

Lortie isn’t buying those arguments, however. He argues in his report that close collaboration among the provincial regulators that make up the Canadian Securities Administrators has produced a high degree of harmonization in legislation and regulations across the country.

“Any differences appropriately reflect local circumstances,” the report adds. In other words, one size does not fit all. And while Canada may not have a national agency similar to the U.S. Securities and Exchange Commission, in practice, Canada has a “national” securities regulatory regime that compares favourably with that in the U.S. and elsewhere.

“A centralized system runs the risk of turning into a disruptive, costly and regrettable initiative that will not give Canadians what they expect,” the Lortie report adds, “while easing many of the benefits achieved so far.”

Following more than a decade of efforts by previous federal governments to create a national securities regulator, the current government has taken steps toward realizing that goal this year. It tabled a draft Securities Act in the House of Commons on May 26, which would establish Ottawa’s jurisdiction over securities legislation and create the FSRA.

SUPREME COURT

At the same time, the federal government also took the unusual step of referring the proposed legislation to the Supreme Court of Canada for a ruling on whether Ottawa has the constitutional authority to take charge of securities regulation. The court’s ruling is pending.

Ottawa has other options, according to the Lortie report: “The Canadian government could have chosen to build on the enviable record of our securities regulatory regime to enhance its position and influence in international forums. Instead, it chose to denigrate and undermine the reputation of Canadian capital markets and to commit substantial funding to duplicate what already exists at a time when public finances are stressed everywhere.”

The report terms the federal government’s actions as “regrettable,” and adds that the feds took these actions “in the pursuit of narrow corporate and bureaucratic interests that are presented as Canada’s interest and are putting in jeopardy a national effort that was achieving substantial success at relatively little cost.”

Lortie’s final thoughts pull no punches: “In the end, the vainglorious attempt by the federal government to assert its domination over securities legislation will most likely run into a disruptive, costly and regrettable initiative, with results contrary to what is purported to be sought.”

The Canadian Securities Transition Office, which was established by the federal government to lead the transition to a national regulator, says it is not in a position to argue with opponents of the proposal.

“Lortie has, in describing the proposed [FSRA] as a centralized regulator, misconstrued the nature of our proposal,” says Eloise Lewis, communications advisor with the CSTO. “Our plan is for [an FSRA] with authority and service delivery distributed through a network of local offices in all provinces and territories.” IE