In May 2010, the federal government released a draft version of the Canadian Securities Act, which outlines its proposed national securities regulatory body. The federal government contends that a national regulator will create a national voice for Canada in the global market. Canada will be able to better respond to global events that may pose a systemic risk to its financial markets. The feds also argue that a national regulator will be both effective and proactive in dealing with securities-related crime. It will be better able to protect investors from securities fraud, since it will have stronger enforcement powers, greater expertise and more resources.
There are a number of hurdles that the federal government must overcome to create a national regulator, starting with the strong opposition of the provincial governments in Alberta and Quebec. The provinces’ position is that a national regulator is an unwanted intrusion by the federal government into an area that is provincially regulated, and doing so very well. The idea of a national regulator strikes fear into the heart of many provincial governments who believe that centralized regulation will result in significant economic and job losses in the provinces. Several provinces argue that the “passport system” which allows registrants (dealer members and investment advisors) a single point of access to the capital markets regulated by those provinces that have signed on is working fine, so why fix something that isn’t broken.
While the passport system does work well, the system does not deal with matters related to securities enforcement, such as regulating securities exchanges, self-regulatory organizations (the MFDA and IIROC) or clearing agencies, all of which are currently regulated at the provincial level and are fundamental elements of an efficient regulatory system.
The jurisdictional battle lines between the federal government and the provinces of Alberta and Quebec have been drawn. The federal government has referred the proposed Canadian Securities Act to the Supreme Court of Canada on the question of whether the Act is within the legislative authority of the Government of Canada. The constitutional reference is expected to be heard by April 2011. The provinces have also brought reference cases to the courts.
Whatever the merits of creating a national regulatory system, it is clear that it must be an all encompassing system. Since the federal government has already provided an “opt out” provision in its proposed national scheme, which will almost surely leave one or two provinces out, it has "shot itself in the foot". The proposed system will be fragmented, and will likely leave many of the inefficiencies it was aiming to cure. Still, the situation is not fully settled, and perhaps a sensible solution will be found.
