Federal committee calls for single national securities regulator

(December 17, 2003) It’s time Canada moved to a single national securities regulator, based in Ottawa but with strong regional representation. That’s the conclusion of the federally appointed wise persons’ committee (WPC), set up to review Canada’s fragmented regulatory system.

In a much anticipated report released today, the committee said that Canada suffers from “inadequate enforcement and inconsistent investor protection. Policy development is characterized by compromise and delay. The system is too costly, duplicative and inefficient.”

It also noted that Canada is the only major industrialized country without a national securities regulator and pointed to substantial frustration among investors, issuers and advisors with the status quo.

With that in mind, the committee arrived at an obvious conclusion, said chair Michael Phelps at a news conference in Vancouver.

“[We] came to the view pretty quickly that Canada needs a stronger, less complex securities regulatory structure, with a single act, administered by a single regulatory body — not 13 codes administered by 13 commissions,” he said.

“The world has changed,” Phelps added. “There was a time when Canada was well served by a provincially based system of securities regulation, but those days are gone.

“It was made abundantly clear to the committee in 92 written submissions and through nine days of public consultations with issuers, investors and other market participants across the country that there is a new and unprecedented demand for change,” Phelps said.

Of the 77 submissions that made specific recommendations on a preferred regulatory structure, 57 chose a single national regulator, the committee noted, including the TSX Group and five of the six big banks.

Canadian Securities Commission

The proposed new regulator, to be known as the Canadian Securities Commission, would consist of nine full-time regional commissioners, appointed by the federal minister of finance.

The commission would be responsible for policy, administering a comprehensive code of capital markets regulation to be enacted by Ottawa. The committee says the new Canadian Securities Act legislation should take into account the Canadian Securities Administrators’ draft uniform securities act, which was released yesterday.

The commission would include two representatives from Ontario, two from Quebec, one each from B.C. and Alberta, and two from the remaining provinces and territories. There would be no regional restriction on the ninth commissioner.

A securities policy ministerial committee, including the finance minister and his provincial counterparts, would be established to provide a forum for policy and administrative input.

The regional offices would be in Vancouver, Calgary, Winnipeg, Toronto, Montreal and Halifax. They would take care of day-to-day operations, such as reviewing prospectuses and registration requirements, conducting compliance reviews and investigations, and initiating enforcement proceedings.

“A majority of provinces would have the ability to veto amendments to the securities act and the provinces would have strong input on policy reform,” Phelps said.

Provincial opposition

B.C, Alberta and Quebec have all expressed strong opposition to a national regulator. But the committee’s report says it’s not necessary for all provinces to participate in the new commission. “The constitutional opinions presented to the committee confirm this conclusion,” the report says.

“We’ve heard it expressed that this matter is reserved, under Canada’s constitution, for the provinces,” said Phelps. “This is not the case. The legal advice we received confirms that the federal government has jurisdiction with respect to capital markets regulation.

“We won’t get very far if this is an exercise in constitutional law or something that touches on turf protection,” he added. “It has to be about what’s best for Canada’s capital markets. My hope is that every province will say ‘We want to study this.'”

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Passport model rejected

The widely discussed passport system — in which market participants would register with and comply with the rules of a single jurisdiction — has received support from a number of provinces and regulators.

The WPC says although such a system would be a significant incremental improvement from the status quo, it does not improve enforcement nor policy development and does not maximize potential cost savings and efficiencies.

“It is not the best securities regulatory structure for Canada,” the report says. “We can, and should, do better.”

“Current efforts are simply not enough and the passport system falls into that category,” Phelps added.

Political considerations

The WPC was created in March by John Manley, who has since been replaced in the portfolio by Ralph Goodale. The WPC says its recommendations should be implemented without delay. That seems unlikely, however. Goodale has held the finance portfolio for less than a week and will need to consult with the provinces before taking any action.

“It’s hard to predict how long this will take.” Phelps admitted. “If it were me, I would try to do this in around a year. But governments will need to go at their own pace,” he noted, conceding that an expected spring federal election could slow down the process.

In a statement released today, Goodale said he has already shared the WPC report with provincial ministers responsible for securities regulation. “I intend to study the report and its recommendations, and would encourage provincial ministers and the industry to do the same,” he said. “I look forward to discussing the report with them in the near future.”

On the issue of cost, the WPC cited a Charles River Associates study commissioned by the IDA, which concluded that consolidating the 13 provincial regulators into a single regulator could save as much as $50 million a year.

“Incrementally, this should involve less cost, not more cost,” Phelps said. “We think the savings could be in the neighbourhood of $1 billion.”

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What do you think of the WPC report? Will the idea of a single regulator fly or will it be killed by provincial opposition? Share your thoughts in the “Free For All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(12/17/03)