Editorial: A real Purdy solution

It’s a problem that’s been talked about for decades but, like the weather, no one ever seems to be able to do anything about it: why does Canada have so many securities regulators when one will do?

Unlike every other major country with a single, national regulator, Canada’s securities regulation is now performed by 13 different provincial and territorial regulators administering 13 bodies of securities legislation and charging 13 sets of fees. This, for a country that represents a piddly 3.2% of the world’s equity-capital market and 1.5% of its fixed-income capital market.

The downsides to such redundancies are obvious, with the worst being excessive red tape, filing fees and compliance costs, and the embarrassingly weak enforcement of securities laws, which has led to a general loss of confidence in Canadian markets.

Thankfully, after all these years, a way clear has finally been laid out by Ontario lawyer Purdy Crawford through his Crawford Panel on a Single Canadian Securities Regulator and its final paper, delivered in early June, titled Blueprint for a Canadian Securities Commission.

Crawford set up the panel in May 2005 at the invitation of Ontario member of provincial parliament and chair of the cabinet’s management board, Gerry Phillips, who has since been promoted to minister of government services.

Although provincial in origin, the panel’s vision was national: its mandate was to recommend a securities regulatory framework that would feature a common securities regulator, a common body of securities law, and a single fee structure.

The panel comprised a diverse set of volunteers from all over Canada: Crawford, counsel at Osler, Hoskin & Harcourt and former Imasco CEO; Telus chairman Brian Canfield; Claude Lamoureux, president and CEO of the Ontario Teachers’ Pension Plan; John A. MacNaughton, corporate director and former president and CEO of the Canada Pension Plan Investment Board; BMO Nesbitt Burns chairman Jacques Mnard; EnCana vice-chairman Gwyn Morgan; and Dawn Russell, associate professor and former dean of Dalhousie Law School.

The panel produced a discussion paper in December 2005, and in the new year held meetings with market participants in Vancouver, Calgary, Winnipeg, Toronto, Montreal and Halifax. Panel members also met with ministers and civil servants responsible for securities regulation.

In its final report, available at www.crawfordpanel.ca, the panel has elegantly devised a politically viable way to create a single, national securities regulator that would get around the usual protestations of turf-encroachment by the provinces by building on existing provincial strengths and safeguarding against domination by any one jurisdiction.

Using the successful, multi-jurisdictional Canada and Quebec pension plan investment boards as models, the Crawford panel proposes that the new, self-funding Canadian Securities Commission (CSC) be overseen by a council of ministers, one from each participating jurisdiction, including the federal finance minister. Each council member would have a single vote to ensure that neither Ontario nor the federal government dominates the council (even though the Ontario Securities Commission currently regulates 83% of Canada’s total listed market capitalization!).

The participating jurisdictions would then appoint members to an arm’s-length nominating committee that would choose candidates to serve on the CSC’s board of directors and a newly formed Canadian Securities Tribunal.

The CSC’s board of directors, in turn, would select a management team led by a chief commissioner and a series of vice-commissioners.

The Canadian Securities Tribunal would be headed by a chief adjudicator and operate separately from the CSC, having its own offices, staff and budget, and a head office in a different city than that of the CSC.

The tribunal would convene hearings to consider allegations by CSC staff of securities violations, although serious offences would still be tried in provincial courts.

The CSC would administer the Canadian Securities Act, which would be in force in all participating jurisdictions, and would only need to be passed through provincial and territorial legislatures and not the national parliament. The act would grant the CSC the authority to make the rules that would govern capital markets, thereby avoiding the need to frequently amend the act.

The panel admits that choosing a city to host the CSC’s head office is a political hot potato. With most jurisdictions fearing too much concentration of power in Ontario, Toronto is unlikely to house the CSC head office, though the city would still undoubtedly have the largest working office. Ottawa is not well regarded as a candidate, since it is not a commercial city, and Montreal is out because it’s unlikely Quebec would participate in the single-regulator scheme (this is, after all, a jurisdiction that even frowns on new national parks being set up within their “nation.”) That leaves Vancouver and Calgary as leading candidates for a CSC head office, and Toronto as the likely head office of the tribunal.

The only negatives for most existing regulators would be the short-term job losses created by eliminating redundant positions and the loss of tax revenue by some provinces that are now substantially overcharging issuers.

Provincially, some progress has already been made towards simplifying the regulatory environment. Over the past year, all the securities regulators in Canada — with the notable exception of Ontario — have been advancing their “passport system,” whereby securities regulations are being harmonized somewhat, and issuers operating validly in one jurisdiction may carry that approval into all other participating jurisdictions. (Ontario is declining to officially participate in the passport system until it gains firm assurances from the other jurisdictions that they will push on towards a single regulator system.)

Jim Flaherty, Canada’s finance minister, threw his full weight behind the Crawford panel’s report in an address to the Halifax Chamber of Commerce in mid-June, and noted that “it’s about creating a common securities regulator, not necessarily a federal securities regulator.”

He described the single-regulator issue as one of “growing national importance” that is “critical to our future prosperity” and as “basic to a strong economy as (low) interest rates and inflation.” He added that by maintaining a system of 13 regulators, Canada is “out of step with the Western World.”

Flaherty arranged for the topic to be brought up during a 1-day meeting in late June in Niagara-on-the-Lake, Ont., after Canada’s finance ministers met to discuss the supposed “fiscal imbalance” between the federal and provincial governments.

No firm commitments came out of the meeting, but it was a good first step in getting all the jurisdictions thinking and talking about this meaty proposal.

The Senate’s banking, commerce and trading committee recently issued a report setting June 30, 2007, as a deadline for the Canadian government to establish a common securities regulator with the provinces and territories.

The Senate committee mainly drew upon similar work carried out in 2003 by a self-described Wise Persons Committee. However, that work was fatally flawed by an Ottawa-first approach of concentrating power while trampling on long-standing provincial jurisdictions (in other words, par for the course during the incompetent and corrupt 13-year federal reign of the Liberal Party of Canada.)

The beauty of the Crawford blueprint, and the reason it has a real chance of succeeding with federal support, is its inherent respect of provincial and territorial jurisdictions over securities regulation.