Letter from... Canada

Canada is the only major country in the world without a single securities administrator - something that has been the subject of debate for many years. The federal Minister of Finance recently created an expert panel to review securities regulation, to perhaps make changes to the current structure.

Currently, Canada's 10 provinces and three territories are responsible for securities regulation, although they are all members of the Canadian Securities Administrators (CSA), a forum for the regulators to harmonise regulation. As part of the CSA, the various regulators collaborate on rules and other programmes to avoid duplication of work and streamline the regulatory process. While the CSA co-ordinates initiatives countrywide, the provincial and territorial regulators handle all complaints regarding securities violations in their respective jurisdictions, and are responsible for enforcement of securities regulations.

The CSA recently implemented a passport system, which is a regulatory framework designed to provide market participants with streamlined access to capital markets in jurisdictions across Canada. All provinces and territories, except Ontario, are participating in this system. The federal government believes this structure could be improved and has asked the expert panel to provide recommendations on the best way forward.

The essence of this initiative - whether Canadian markets would be better served under a single securities administrator and federal regulation - has been a topic for discussion for decades. In 1964, the Royal Commission on Banking and Finance recommended the creation of a federal regulatory agency, and in 1979 the federal government commissioned Philip Anisman to write a proposal for a national securities market law. His report included a draft statute.

In 2003, the Wise Persons' Committee to Review the Structure of Securities Regulation in Canada called for the creation of a single regulator, built on a joint federal-provincial model. Under this model, a Canadian Securities Commission would include regional representation. Three years later, the Crawford Panel on a Single Canadian Securities Regulator also recommended that the provincial and federal governments create a single Canadian securities regulator. Under the Crawford Panel's model, a single Canadian securities act would apply across all participating jurisdictions.

At the centre of the debate is the separation of powers between the provincial and federal governments. 'The federal government and the Government of Ontario want a national regulator, whereas all the other jurisdictions are not of this view,' explains Jean St-Gelais, chair of the CSA.

In its submission to the expert panel, Quebec's Autorité des Marchés Financiers (AMF) says the system of provincial and territorial regulators is the most appropriate since regulators are able to identify and respond more effectively to the specific needs of firms in their jurisdictions. 'The criticism expressed by the federal government against the country's securities industry is tarnishing the industry's reputation abroad and is undermining Canada's economic interests,' says the AMF.

The British Columbia Securities Commission (BCSC) also made a submission to the expert panel, expressing scepticism of the arguments put forward in favour of a single regulator. 'Canada's decentralised regulatory structure has many strengths, and the implementation of the passport system is improving it more,' the BCSC states. 'Furthermore, changing the structure carries significant risks.'

BCSC chair Douglas Hyndman says these risks include degraded service to regions that are removed from the centre. 'Securities regulators deal with thousands of public companies and more than 100,000 registered individuals, scattered across six time zones. The panel should seriously consider whether, in the Canadian context, a centralised agency could provide the type of responsive, on-the-ground regulation this market needs,' the BCSC says.

Other interested parties think it would. 'The key issue,' says Mr Anisman, author of the 1979 report, 'is the fact that the federal government has no voice in securities market policy development.'

In its submission to the panel, the Investment Industry Association of Canada recognises that Canadian securities commissions have increasingly co-ordinated their policy-making and enforcement activities. However, it says, 'The need for consensus among a group of regulators (rather than simply creating one regulator speaking with one voice) may… slow down the regulatory process, or result in issues not being addressed.'

The Canadian Bankers Association (CBA) believes the passport model is not delivering the benefits of a single regulator. 'All local rules still have to be complied with,' it states, adding, '…co-ordinating 13 different jurisdictions in a passport system leads to both slow decision-making and implementation, and entrenches a lack of harmonisation in the regulatory system.'

We have an impasse, in which the federal government, Ontario and some interested stakeholders want a single regulator, while the remaining provinces are in favour of further development of the passport system. Since the Quebec Government has indicated it would never support a centralised regulator, but does support the passport system, the only solution would appear to be for Ontario to participate. However, the Ontario Government has indicated it will not participate in the passport system without a roadmap to get to a common securities regulator. Any conclusions this expert panel makes are not likely to break this stalemate.

Alison Arnot, freelance writer and editor, Ottawa.