Flaherty's pitch for a new securities regulator

Finance Minister Jim Flaherty (right) was in Calgary Thursday where he gave a speech to the Canada West Foundation. He spent the first part of this speech re-telling the “Conservative story” — all the things his government has done since it took office. He also noted, as many economists have also done, how well Canada’s economy is doing.

But then, for the last section of this speech, he delivered a strong pitch for a single national securities regulator, like the U.S. Securities and Exchange Commission.  One of the biggest opponents of such an idea is Alberta Premier Ed Stelmach.

I was not at the speech but I asked the Minister’s office for a copy of it. Here’s an excerpt of the text they provided me:

…there is more to do if we are to keep our economy on an upward trajectory.

Through this Trade, Investment and Labour Mobility Agreement Alberta and British Columbia are blazing a trail to a stronger and better Canada. I believe these provinces can provide similar economic leadership by supporting a Common Securities Regulator.

Canada has a strong Financial Services Sector that spans the country providing good high paying jobs. We have a great story to tell, one of economic success, visionary entrepreneurs, growing competitiveness and unbounded potential. And the world sees that potential.

Yet we have a capital markets regulatory system that is holding us back. A system of 13 regulators that is clearly out of step with our global competitors.

We are the only industrialized country without a Common Securities Regulator. For many, our system is seen as cumbersome, fragmented, slow and repetitive, and lacking the proper tools of enforcement.

To maximize our potential, we must work collaboratively to develop a competitive advantage in global capital markets and reform Canada’s securities system.  This is the thrust of the Capital Markets Plan our government issued with Budget 2007.

Three years ago, all provinces and territories, with the exception of Ontario, agreed to a process to create a “passport-style” system to regulate securities.

Through their actions, the provinces and territories have demonstrated a clear commitment to improving our securities regulatory system. I applaud them for that. Their recent initiatives to narrow regulatory differences and harmonize and streamline securities laws are important to achieving a more efficient and effective securities regulatory system.

But unfortunately, they do not go far enough or fast enough.

As I told the provincial and territorial Finance and Securities Regulation Ministers the passport system is simply inadequate for where Canada needs to be:

1) With the passport, Canada still has 13 securities regulators, with 13 sets of laws, however harmonized, and 13 sets of fees;

2) The passport lacks national coordination of enforcement activities – making it difficult to maximize results on this critical part of the system; and,

3) The passport does not address our need to improve policy making.  It is still necessary to obtain agreement from 13 regulators to make changes to rules.

The vast majority of capital market participants and observers agree that we can no longer afford to sit back and watch our competitors pass us by.

We can no longer afford missed opportunities. Those who seriously considered all of the great advantages we have to offer in Canada, our educated labour force, our social benefits, our strong economy, and yet opted for a country with a more efficient market system.

We must move to a Common Securities Regulator now. The benefits are well known.

It will:

• lead to more investment and jobs;
• protect investors;
• save money;
• and give all regions a real say.

Such a solution would make the regulation of our markets more responsive and accountable by creating a decision-making body that would co‑ordinate the views of all jurisdictions promptly and fairly. 

Recent developments in global capital markets underscore the need for policy and regulatory capacity that can be applied quickly and effectively to address new and emerging issues.

A Common Securities Regulator would improve market efficiency and ensure the best use of money and resources by making the system more efficient to operate, lowering costs and making it more affordable for all who benefit from it, both those with capital to invest and those with businesses to build.

A Common Securities Regulator would improve enforcement and better protect investors with a common set of sanctions and remedies and better enforcement across the country. By serving as a single contact for law enforcement agencies, both at home and abroad, to share information and detect market fraud. By being able to set clear enforcement priorities across the country, while making sure investigation and enforcement resources are deployed efficiently.

A Common Securities Regulator would better serve our common interest by having a structure that would allow all regions of the country to participate in market regulation in a more meaningful and constructive way. By having a structure that would ensure broad and equal participation by all provinces and territories, with a strong on-the-ground presence in all regions with local expertise that would respond to regional needs.

A Common Securities Regulator would also represent an opportunity to move toward simpler, more principles-based regulation.  Canada needs a regulatory framework that is world-class but also adapted to the make-up of its capital markets, with both Canada-based global corporations and a large number of small and medium-sized businesses. 

Too many complex rules get in the way of both efficient financings and effective investor protection.  Western provinces have championed more streamlined, principles-based regulation.  Exerting further leadership in developing a single code for Canada, with the right balance of rules and principles, would help establish a clear competitive advantage for Canada in global markets.

A Common Securities Regulator would also allow Canada to speak with one voice on the international stage, enhancing the protection and promotion of the interests of Canadian market
investors and businesses.

For example, I personally have been championing the concept of free trade in securities with my counterparts in the U.S. and other G7 and international partners that share high standards of investor protection.  Under mutual recognition of each other’s regime, our investors would have better access to global opportunities, and businesses listed on our exchanges would have better access to global investors.  It is a win-win proposition and I am getting enthusiastic responses from my counterparts. 

Clearly, there will be a first-mover advantage.  Our securities regulators are engaged constructively but our capacity to implement a strategy and secure an agreement for all of Canada would be greatly enhanced with one regulator clearly accountable to negotiate on Canada’s behalf.  We don’t have that, and it clearly puts us at a disadvantage.