Canada Debates Whether to Establish a National Securities Regulator

Sources:
Bloomberg: Canada Needs Single Regulator, IMF’s Hockin Says
Montreal Gazette: Canada Will Suffer Without a Sole Regulator: IMF
The Globe and Mail: Lack of National Regulator Cited as Investment Barrier
CBC News: Banks Call for Single Securities Regulator
The Financial Post: Quebec's Court of Appeals Weighs in on National Securities Regulator Issue

This week, Canada’s executive director at the International Monetary Fund (IMF), Tom Hockin, expressed growing concern over the country’s financial stability. Canada currently does not have a national securities regulator. This is uncommon for a major industrialized country; Canada is the only G7 nation that lacks a federal regulator. Currently, the twelve provinces each have their own capital market regulating body. Critics say the system promotes inconsistent policies and creates problems and complicates the monitoring and assessment of capital flows.

In 2009, the Canadian government appointed a committee to investigate whether the country should create a securities regulator. The committee recommended that an oversight body be established, concluding that a federal regulator would reduce costs and boost the confidence of both investors and issuers. The committee also believed that a federal regulator would be able to manage broad systemic risks better than the current system, enabling the nation to respond better in the event of a financial crisis. The IMF has expressed concern about Canada’s ability to respond to a financial crisis without a federal oversight body. It believes that a single federal regulator would lead to better enforcement of the securities laws and more accountability. Both the committee and the IMF also agree that establishing a federal regulator would attract more international investors in Canada’s capital markets.

The committee’s report prompted Canada’s federal government to advocate for the creation of a national regulating body. Last May, Canadian Finance Minister, Jim Flaherty drafted the Canadian Securities Act, which would establish a federal oversight body. Flaherty then submitted the bill to the nation’s Supreme Court for a ruling on whether it is constitutional. The Supreme Court is expected to start hearing arguments in April on whether the federal government has the authority to create a securities regulatory body.

Three of the twelve provinces, Quebec, Manitoba, and Alberta, have been adamant in their opposition to the creation of such a regulating body. Several other provinces have been non-committal over the federal government’s plan, and only two, Ottawa and Ontario, have been vocal in their support. The opposing provinces argue that the existing regulatory system is effective and warn that allowing the federal government to establish a regulatory would set a dangerous precedent of federal intrusion into the provinces’ jurisdiction. If the Supreme Court rules that the federal government does have jurisdiction to establish a regulatory body, the government would like to have it fully operational by July of 2012.

Discussion:
1. Should Canada establish a securities regulatory body at the federal level?
2. What are some advantages of Canada’s current regulatory system?