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Provincial opposition won’t scuttle plans for national securities regulator: expert

Date: Friday, May 28, 2010
Author: Investment Executive

Finance Minister Jim Flaherty has outlined his plan for the formation of a national securities regulator and there are strong winds blowing against him from Alberta and Quebec -- which might put a few kinks in the scheme but are not likely to scuttle it, according to one expert.

A new national securities regulator will go ahead with or without the support of all the provinces, even if that means some regulatory elements will have to operate in the same fragmented way they do now, said Heather Zordel, a securities lawyer with Cassels Brock.

“If Alberta is not participating, where does that leave you? Well, that leaves you with an unfortunate situation where the co-ordination effort is going to have to be dealt with through the offices of the people that do participate,” Zordel said in an interview Thursday.

“You are still going to have provincial regulation, but for the time being that’s not a huge problem because you can allow this to work in the same manner that this works now.”

Currently, all 13 provinces and territories have their own securities regulators who police financial markets for signs of fraud and other financial misdoings. Alberta, for example, is able to regulate oil and gas companies in the way it sees fit.

The new body would operate under one set of rules and policies, not 13. In theory at least, it would be more efficient and effective in regulating financial markets and investment, and more vigorous in investigating and prosecuting abuses and fraud.

The new act would give police expanded powers to probe insider trading and would be able to compel market players to supply information on suspicious trades. Regulators would also have greater ability to scrutinize such complex investment instruments as derivatives and hedge funds.

If Alberta and Quebec -- both of which have launched constitutional challenges against the creation of a national regulator -- decide to opt out of the voluntary organization it will mean an added level of bureaucracy, said Zordel, who was a member of the expert panel that advised Ottawa on the creation of a national regulator.

Currently, if a Western Canadian oil company submitted a prospectus, it would be reviewed by both Alberta -- the jurisdiction in which the company operates -- and Ontario, where the Toronto Stock Exchange is located. If Alberta and Quebec didn’t join the national regulator, this process would continue, she said.

However, the two provinces’ fears about losing control over securities to an organization that will probably be based in Toronto are overblown, Zordel said.

“Nobody is saying we should pick up regulation of the oil and gas sector and put it in downtown Toronto,” she said. “That just doesn’t make a whole lot of sense, because your expertise and understanding of that industry is based in Calgary and we’d like to see that continue.”

The expert panel recommended the national regulator continue to operate as a decentralized system with offices in every province and territory, and Flaherty confirmed Wednesday that this is the government’s plan.

The introduction Wednesday of legislation for the creation of a national securities regulator with enhanced policing powers over stock fraud across the country has set the stage for three court fights. Quebec and Alberta have already launched challenges in their provincial courts of appeal, while Flaherty said he is sending his draft bill to the Supreme Court of Canada for a ruling on whether securities regulation falls under the jurisdiction of Ottawa or the provinces.

The Supreme Court decision is expected to take some time -- between 10 months and a year -- but Flaherty said he is confident of victory.

However, Quebec Premier Jean Charest said Wednesday the provinces will “defend our jurisdictions with plenty of vigour.”

And Alberta Finance Minister Ted Morton called the federal move an “unprecedented power grab” without justification.