Two Provinces Join Canada’s National Securities Regulator

Canada is adding two more provinces to its proposed national securities regulator as the federal government inches forward with its plan to unify a patchwork system of regional watchdogs.

Saskatchewan and New Brunswick are joining the federal proposal to harmonize rules for the world’s sixth-largest stock market, Finance Minister Joe Oliver said today in Ottawa. He also renewed his call for holdouts including Quebec and Alberta to follow suit, while pledging rules to ensure that non-participating provinces can mesh with the new system.

“Whether they decide to participate or not, their interests will not be undermined” by the joint regulator, Oliver told reporters. “However, the door is always open.”

Canada is the only Group-of-Seven country without a national securities regulator, and the current system of 13 provincial agencies is more costly and reduces the country’s ability to regulate, according to the governing Conservative Party, which has been pushing for a single model since coming to power in 2006. British Columbia and Ontario are already participating in the plan, unveiled by the late former Finance Minister Jim Flaherty in September.

Quebec Finance Minister Carlos Leitao reiterated that his province won’t join the national regulator. He claims it will result in job losses and would shift more financial power away from Montreal, the French-speaking province’s biggest city and home to the country’s derivatives market. The province isn’t ruling out a legal challenge once it sees the federal legislation, he said.

Court Action

“We’ll see then if we have a reason to turn to the courts,” Leitao said in a phone interview.

Doug Horner, finance minister of energy-rich Alberta, where eight of the country’s 20 largest companies by market value are headquartered, said Ottawa’s moves toward a unified regulator will only lead to a “more fractured system.”

“We do not believe that four provinces constitute a critical mass of support for a change of this magnitude,” Horner said in a statement.

The new federal system will enhance the country’s ability to protect investors against systemic risks to Canada’s financial system, Oliver said.

“Today’s agreement is a major step toward a single regulator, national in scope, that will enhance Canada’s capital markets,” said Oliver, a former investment banker who spent 12 years heading the Investment Dealers Association before entering politics.

Lost Revenue

The regulator should be in operation by the second half of next year, and provincial governments will be compensated for any revenue lost through the transition, according to a document published by the finance department today. The new body will oversee companies with almost 55 percent of Canada’s total market value.

“We need a national regulator,” Thomas Caldwell, chairman of Caldwell Securities Ltd. which manages about C$1 billion ($940 million), said by phone from Toronto. “Internationally you have to have one voice speaking. In the country, the advantages are obvious in terms of costs and less jurisdiction.”

With the addition of Saskatchewan and New Brunswick the proposed regulator has the “critical mass” to begin operations, Ian Russell, head of the Investment Industry Association of Canada, said in a statement

Oliver said he spoke to Leitao yesterday and assured him the new regulator will put together rules that will ensure provinces that choose not to join can partner with the watchdog.

Under the plan, provinces would formulate common legislation and pass it individually, a cooperative approach that seeks to overcome constitutional constraints on a federal national regulator.

Original Plan

Flaherty’s original plan for a national regulator, released in 2010, suffered a setback when the Supreme Court of Canada ruled a year later the proposal was unconstitutional because it encroached on provincial jurisdiction. The case turned on whether the federal government has the authority to create a national regulator under a section of the constitution that gives Parliament the power to regulate trade and commerce.

Under the current proposal, the participating provinces and federal government would delegate the administration of their securities regulation to a common watchdog with a council of ministers to oversee the system. The new body would eventually replace the Ontario Securities Commission, the country’s largest securities regulator.

Panel Recommendation

The value of all the listed stocks in Canada totals $2.35 trillion, according to data compiled by Bloomberg, making it the sixth-largest market after the U.S., Japan, the U.K., Hong Kong and China.

A government-appointed panel recommended in 2009 the establishment of the Canadian Securities Commission to administer a single securities act for Canada. Such a move would reduce costs and uncertainty for issuers and investors, the panel said in it’s final report. It would also bolster the country’s ability to respond to market changes and safeguard against so-called systemic risk that make financial markets vulnerable to a bad decision by one of the provinces.

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