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Quebec, Alberta say proposed national securities regulator would cause market havoc

Date: Wednesday, June 16, 2010
Author: Investment Executive

Federal efforts to form a national securities regulator will lead to confusion and turmoil in Canada’s financial markets instead of helping them, Quebec and Alberta warned Tuesday.

The provinces called a news conference to argue that upcoming court battles would translate into a prolonged period of uncertainty for investors.

Those legal cases include Finance Minister Jim Flaherty’s referral of draft legislation to the Supreme Court of Canada, which said this week it would hear the case in April 2011.

So far, Quebec and Alberta are alone in leading the charge against the idea of wrapping up provincial regulators into a single national body.

But at a joint news conference with his Quebec counterpart, Alberta Finance Minister Ted Morton predicted other provinces would join the fight eventually.

“There may only be two of us here today but I am confident there will be a lot more than two before the Supreme Court next April,” he said in Montreal.

Alongside Quebec Finance Minister Raymond Bachand, he urged other provinces to be “cautious” in taking part in federal plans for a national regulator before the Supreme Court had ruled on the matter.

“We cannot afford to redirect time and resources to design a new system that can be ruled unconstitutional,” the pair said in a statement issued Tuesday.

The federal government may have been hoping to avoid a showdown with the provinces by including an opt-out clause in its proposal.

Quebec, however, indicated it would not be deterred in its opposition, arguing that the new system would offer no improvement from the status quo if several provinces decided to opt out.

“We would find ourselves in a passport system, which is the system we have now and which works well,” provincial Finance Minister Raymond Bachand said.

“We will have gone through a period of disarray and confusion in the regulation of financial markets.”

He also suggested patchwork implementation would encourage companies to shop for those jurisdictions with less stringent regulations.

In draft legislation unveiled last month, Ottawa plans to give the Canadian Securities Regulatory Authority new powers to fight such financial crimes as insider trading.

Creating a centralized authority would, according to Ottawa, reduce red tape in investment and bring Canada in line with other Western countries.

Flaherty’s office did not respond to a request for comment on the warnings of his provincial counterparts.

Both Quebec and Alberta have referred the matter to their respective courts of appeal, claiming it represents a federal infringement on provincial jurisdiction.

Manitoba has also indicated it is uneasy with the proposal, but has refrained from the vocal protests of the other two opponents.

The provinces claim the current so-called passport system, in which oversight of Canada’s capital markets is divided among 13 different regulators, has proved effective at preventing fraud and hasn’t hindered investment.

“We think local enforcement is more effective because it’s based on local knowledge,” Morton said.

He added that the provinces nevertheless welcomed elements of the proposed bill that would see changes to the Criminal Code to force private firms to release the names of those buying certain securities.

Supporting such an enhanced federal presence, Morton said, was “completely possible within the existence passport system.”

The campaign to drum up opposition to the national securities regulator will shift to the West later this summer, when Bachand plans to visit Alberta.

The alliance between Quebec and Alberta may be a marriage of convenience for two provinces who are often at cross-purposes on other issues, notably the environment.

But the Alberta-Quebec tag team could take shape again to fight against another one of Flaherty’s initiatives: raising mandatory premiums for the Canada Pension Plan.

The move would punish younger generations while also reducing take-home pay, said Morton, whose government has been a vocal critic of the federal proposal.

Quebec, which runs its own plan, is noncommittal on the issue but has left the door open to finding common cause with Alberta.

“We share the same concerns (and) we’re trying to find a solution,” Bachand said.

“All the employers of Quebec … have opposed an increase in the mandate of the QPP or CPP because taxes on salaries are quite high in Quebec, higher than in the rest of Canada.”