Ottawa's new securities pitch: One watchdog, several offices

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Canadian securities lawmakers will unveil a roadmap on Tuesday for the creation of a national regulator - one that won't include a centralized head office.

The recommendations outlined by a transition office set up by the federal government will suggest that control reside in a number of regional offices, the latest compromise in what has been a 40-year struggle to replace the country's antiquated system for policing securities markets with a single agency.

Ontario Premier Dalton McGuinty, the biggest supporter of the federal government's single-regulator initiative, has lobbied to have the head office in Toronto, home to Canada's major industry players.

But Doug Hyndman, the former chairman of the British Columbia Securities Commission who is leading the transition office, presents an altogether different proposal, according to securities-industry sources familiar with the plan.

The new regulator would not have a head office at all under the plan drafted by Mr. Hyndman, the sources said. Instead, the regulator would operate from regional offices across Canada.

Offices would initially be set up in Toronto and Vancouver, cities in the two provinces that have agreed to participate in a single regulator, the sources said. Additional offices would be added in major cities as other provinces, which have the option of voluntarily joining the national system, sign on.

Federal Finance Minister Jim Flaherty, the driving force behind a single regulator, has gone along with the proposal, the sources said, in the hopes of persuading holdout provinces to throw their support behind the national regulator.

Alberta and Quebec are leading the charge against it. For other provinces that are non-committal, having the head office in Toronto would be a deal-breaker, the sources said.

"If the thing is an export of the current Ontario Securities Commission to the rest of Canada, it will never happen," said one of the sources who asked not to be named.

Mr. Hyndman and Mr. Flaherty did not return telephone messages on Monday.

The plan drafted by Mr. Hyndman's Canadian Securities Transition Office raises questions about the power structure for the proposed regulator, which on the face of it appears to defeat the purpose of having a single regulator by dispersing decision-making authority in different offices.

The plan will not come as a total surprise to Ontario government officials. Mr. Hyndman initially floated the notion of having the regulator operate from regional offices back in March.

Chisholm Pothier, a spokesman for Mr. Flaherty, said at the time that Mr. Hyndman's office recognizes that Toronto is Canada's largest financial centre. But those assurances did little to allay the concerns of Ontario Finance Minister Dwight Duncan.

"I've heard some stuff about a virtual office, which in my view is just laughable," Mr. Duncan told The Globe and Mail at the time. "It would be an enormous slap in the face, both to Toronto and to the financial services community if it were not headquartered here."

The McGuinty government stressed the importance of having the head office in Toronto in the Throne Speech last March, which included plans to make the city one of the world's "elite" financial centres.

It is not clear whether the Ontario government will withdraw its support if the head office issue is not resolved to its satisfaction. Such a move could jeopardize the close relations Mr. McGuinty has enjoyed in recent months with Prime Minister Stephen Harper.

An Ontario government official said on Monday the government is confident that it can persuade Mr. Flaherty to change his mind and agree to set up a head office in Toronto. The talks so far, he said, have been very collaborative.

"We're still hopeful for Toronto, mostly because Toronto is the natural choice," he said.

THE SECURITIES STRUGGLE

THE ISSUE

• Finance Minister Jim Flaherty has said that Canada's system of 13 separate regulatory authorities is a costly and inefficient system that is also an international embarrassment. Critics point out that Canada is the only member of the Group of Seven industrialized nations without a national securities regulator.

WHO'S ON BOARD

• Ontario plans to support the federal government's case when the Supreme Court considers the constitutionality of creating a national securities regulator later this year - the first step in the federal government's plan.

WHO'S NOT

• Alberta and Quebec have launched a united front against the federal government's plan for a national securities regulator and say they hope to have other provinces join them. They have asked Mr. Flaherty to stop the activities of the transition office now laying the groundwork for a national regulator. Preparing for a national securities agency before a decision on the constitutionality of the plan from the Supreme Court is a major distraction for all parties concerned, they say.