Year in review: Regulatory reform stalls

(December 29, 2004) This time last year, the winds of regulatory reform were swirling, with a number of important projects on the go. But 12 months later, little has changed and the prospect of a single national securities regulator still seems distant.

In December 2003, the federally-appointed wise persons committee (WPC) released a comprehensive report, calling for a single regulator based in Ottawa, but with strong regional representation in the provinces.

At the time, Finance Minister Ralph Goodale backed the report, even adding a line in the 2004 budget that he would work with provincial and territorial governments to move the process forward. But that hasn’t happened, most likely because the Liberals are in a minority position in Ottawa and are unwilling to rock the boat with controversial proposals that might upset some of the provinces, particularly Quebec, which has adamantly opposed the idea of a national regulator.

Around the same time the WPC report came out, the Canadian Securities Administrators (CSA) released the final draft of its uniform securities law (USL) project, an attempt to harmonize the various provincial securities acts, allowing “one-stop shopping” for registrants and the delegation of decision-making powers. There wasn’t much progress on USL in 2004, although it’s hoped the final version of the project will be ready to be sent to the provinces for approval in 2005.

A couple of smaller reform projects were also on the 2004 agenda. For instance, B.C. amended its Securities Act, but ditched firm-only registration, which would have ended the requirement for individuals to register to trade in or advise on securities, if they worked for a registered firm, giving companies the responsibility of hiring representatives suitable for work in the industry. The new act was scheduled for proclamation in November, but has been delayed to 2005.

Ontario’s fair dealing model also suffered a setback of sorts in 2004. Although the project is now going national, under the auspices of a new CSA steering committee, several of the more controversial proposals in the model will likely be eliminated and the fair dealing name will probably disappear.

But it wasn’t all bad news on the regulatory front this year. In September, six provinces and one territory signed a memorandum of understanding on the passport model, which would allow companies to register to sell securities in one province or territory and all other participating provinces and territories would recognize their credentials.

Under the terms of the deal, the passport system will be established by August, 2005.

However, Ontario was a notable holdout, arguing that the passport model doesn’t go far enough, a sentiment shared by Goodale. Earlier in the year, Gerry Phillips, chair of Ontario’s Management Board of Cabinet, released his own proposal for reform, suggesting the creation of a single regulatory agency run by the provinces, with local offices, one common set of securities laws and a single fee structure based on a cost-recovery basis.

The battle for a single regulator suffered another setback in November when Ontario Securities Commission chair David Brown announced his intention to resign in June, 2005. Brown has been a staunch advocate for a single securities regulator, along with former TSX president Barbara Stymiest, who resigned her position in September to join RBC as chief operating officer.

A speech by IDA president Joe Oliver back in January of this year seems particularly prescient today. At the time, Oliver said that although Canada seemed close to reforming its fractured regulatory system, the window of opportunity wouldn’t last long.

“It’s unrealistic to think that interest will be sustained,” Oliver said. “[WPC chair] Michael Phelps has said if nothing happens within about a year after the next federal election, probably nothing will happen for a long time and that would be unfortunate.”

The clock is ticking and perhaps there’s still time for change, but at this point, there’s little hope that 2005 will be much different than 2004.

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