Finance Minister Jim Flaherty unveils his plan for a national securities regulator during a news conference in Ottawa on May 26, 2010.BLAIR GABLE/Reuters
The Harper government is serving notice that it will impose a federal regulator on Canada's securities markets if it can't win sufficient backing from provinces for a jointly-run approach.
The federal version of this regulator would have to be more limited in scope than Ottawa would prefer because of a 2011 Supreme Court decision that recognized it shares power over securities with the provinces.
The ultimatum, delivered in the 2013 federal budget Thursday, comes after six years of efforts by Finance Minister Jim Flaherty to build support for a common securities regulator among mostly hesitant premiers.
The Harper government wants to replace the patchwork oversight of 13 separate provincial and territorial regulators with a single system run jointly by the provinces and Ottawa – one that could reduce costs for businesses and more efficiently police capital markets.
"Canada is the only industrialized country without a national securities regulator," the budget notes. "By pooling provincial, territorial and federal jurisdiction and expertise, Canada could have a world-leading securities regulatory regime."
Only Ontario and British Columbia have publicly endorsed Mr. Flaherty's push for a common regulator. Many other provinces, such as Quebec, have balked at what they consider an intrusion into their jurisdiction. Ontario represents close to 50 per cent of the capital markets in question and B.C. about 14 per cent.
In the 2013 budget, the Harper government says it's confident it can act alone, if necessary, because of a December, 2011, Supreme Court ruling that laid to rest questions of how much power Ottawa holds when it comes to regulating the sale and trading of stocks, bonds and other market instruments. The Conservatives had asked the court to pronounce on the matter.
Citing the court decision Thursday, the government said the highest court in the land has confirmed Ottawa has the authority to act to maintain the "integrity and stability of the financial system and preserving fair, efficient and competitive national capital markets" across Canada.
But this judicial ruling also placed limits on what Ottawa could do alone and any federal regulator envisioned by Mr. Flaherty would be an inferior regulator to what the Tories are trying to get the provinces to jointly run.
"This will include the capacity to monitor, prevent and respond to systemic risks emerging from capital markets," the budget said. "A federal capital markets regulatory framework would be applied consistently on a national basis and would not displace provincial securities commissions, which would still manage the day-to-day regulation of securities activities."
In this carrot-and-stick approach, Ottawa is asking for more provinces to sign on to a collaborative regulator or prepare for a federal watchdog to take over the field.
"The government would be prepared to delegate the administration of its own securities legislation to a common securities regulator if a critical mass of provinces and territories were willing to do the same," the budget says.
Federal officials declined to say what constitutes a critical mass for the government.
But sources say Ottawa will forgo creating a federal regulator if Ontario, B.C. and Alberta agree to collaborate on a common system.
"If a timely agreement cannot be reached, the government will propose legislation to ensure it can carry out its regulatory responsibilities The federal government has been actively negotiating with Alberta, but officials in Ottawa say Premier Alison Redford's administration is concerned about supporting a move that the opposition Wild Rose party might attack as a giveaway of provincial power.
Mr. Flaherty regularly points to the 2007 Canadian financial crisis caused by problems with asset-backed commercial paper.
The provinces turned to Ottawa to solve the problem – a turn of events the Finance Minister said demonstrates the need for a stronger national approach to securities regulation.
Ian Russell, President and CEO of the Investment Industry Association of Canada, applauded Mr. Flaherty's efforts to enact a common securities regulator.
"We are pleased the government has taken this decisive action. In an era of global regulatory reform, our country needs a strong national voice to ensure the interests of Canadian market participants are properly heard," said Russell.
Ian Russell, President and CEO of the Investment Industry Association of Canada, applauded Mr. Flaherty's efforts to enact a common securities regulator.
"We are pleased the government has taken this decisive action. In an era of global regulatory reform, our country needs a strong national voice to ensure the interests of Canadian market participants are properly heard," said Russell.
With a report from Janet McFarland in Toronto