Alta., Que. vow constitutional battle over national securities regulator

OTTAWA – Alberta and Quebec are girding for a constitutional battle with Ottawa over what they see as "an unprecedented federal power grab," after Finance Minister Jim Flaherty unveiled his plans for a national securities regulator.

On Wednesday, Flaherty unveiled draft legislation to create a single national securities watchdog to replace the provincial and territorial regulators that oversee the country’s stock exchanges and other financial markets. "Today we have 13 regulators, 13 sets of rules and 13 sets of fees. In today’s world of interconnected capital markets, where investors can move billions of dollars at the click of a mouse, we need to lower barriers, not multiply them," he told reporters.

But in a nod to the opposition of some provinces, Flaherty immediately referred the legislation to the Supreme Court to rule on its constitutionality, a process the government expects will take 10 to 18 months. Even if the Supreme Court rules in Ottawa’s favour, provincial participation in the common regulator will remain voluntary, said Flaherty. Although not as vocal as Alberta and Quebec, Manitoba has so far declined to join the national plan.

"I’m really hopeful that over time, all Canadian provinces and territories will join with the Government of Canada in the creation of a Canadian securities regulator. The door is kept open," Flaherty said.

Even as he struck a conciliatory tone, however, Alberta and Quebec appeared to be digging in. Both provinces have asked their courts of appeal to rule on the plan’s constitutionality.

"This will end up in the Supreme Court of Canada and we will be there to fight for our jurisdiction," Quebec Premier Jean Charest told reporters in Quebec City.

Meanwhile, Alberta Finance Minister Ted Morton accused the federal government of trying to "usurp provincial authority over securities regulation in the absence of any evidence the current system needs fixing."

"If we open the door to federal intrusion in this area, we will be potentially inviting intrusion into other areas of provincial jurisdiction governing finance, such as insurance, pensions and financial institutions. Most Albertans don’t want this, and this is why we have joined forces with Quebec to challenge the legality of this unprecedented federal power grab," Morton said in a statement.

A senior Manitoba cabinet minister said the province is happy with the current system. "We’d just as soon not be regulated out of Bay Street," said Agriculture Minister Stan Struthers.

Constitutional expert Patrick Monahan said the federal government should be able to make a strong case that securities regulation falls under federal jurisdiction. "Capital markets today are not just national – they’re global. They don’t respect provincial boundaries. They don’t really respect national boundaries," said Monahan, vice-president academic at York University.

Flaherty has long argued a national regulator would be the last piece in the country’s financial-regulation puzzle. Canada is the only major industrialized nation without a national watchdog.

Last year, an expert panel appointed by Flaherty concluded the current system makes it difficult for regulators to respond to global market shocks and guard against the systemic risks that lead to financial crises.

The Canadian Bankers Association welcomed the move, saying it would reduce the cost to businesses of raising capital.

Flaherty said the new regulator will also better protect investors against financial fraudsters such as Earl Jones, the Montreal financial adviser convicted of defrauding clients in a $50-million Ponzi scheme.

The proposed bill would give the national regulator authority to investigate white-collar crimes, such as securities fraud and insider trading. At present, the provincial securities commissions refer such criminal investigations to law-enforcement authorities. The national regulator would also be given enhanced evidence-gathering tools, such as the ability to force companies to respond to questions about alleged misconduct and cough up information about who has been trading a company’s shares.

The legislation also grants authority to regulate the exotic derivatives that some believe triggered the U.S. subprime mortgage crisis, as well as largely unregulated investment vehicles, such as hedge funds.

Under the current so-called "passport" system, companies that comply with one regulator are automatically deemed to comply with those of the other provinces and territories. But Flaherty said Wednesday that companies listed in provinces that opt out of the national plan won’t be able to join the national regime.

The new regulator would be a Crown corporation with a board of directors appointed by the federal cabinet. It would be funded by fees charged to market participants. A council, including provincial and territorial ministers, would advise the federal finance minister on who to appoint to the board.

It is widely expected that the new regulator will be headquartered in Toronto, where most of the country’s publicly traded companies are based. But Flaherty said no decision has been made on location, and that the employees of all the provincial and territorial commissions will be offered jobs with the new regulator.

Flaherty said a team of experts tasked with implementing the transition should iron out further details on the plan by July.

With a file from Marianne White


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