Finance Minister Jim Flaherty and the governments of Ontario and British Columbia agreed last week on a fresh attempt to reform the regulation of securities trading in Canada. The Selinger government should join in this effort for the benefit of businesses and investors in Manitoba.
Every other economically advanced country has a national securities regulator such as the Financial Conduct Authority of the U.K. and the U.S. Securities and Exchange Commission. These agencies establish uniform rules for companies issuing stocks, bonds and other securities for public sale. They also cover the work of stock exchanges and investment firms, where fraud is a daily danger and confidence of all participants has to be maintained to keep the wheels of industry turning.
Attempts to create such a national agency in Canada have always fallen foul of the exclusive provincial power over property and civil rights. Parliament has power to regulate commerce in general, but it has no power to regulate a particular transaction between a buyer and a seller. But since commerce in general consists of thousands of particular transactions, it’s hard to regulate one without the other.
Mr. Flaherty in 2011 asked the Supreme Court of Canada if Parliament could enact a securities bill he had drafted. No, it could not, the court said, because the proposed act would regulate day-to-day securities transactions in the provinces. But the court recognized the practical problems and invited Mr. Flaherty to try again in a spirit of co-operative federalism and with fuller accommodation of provincial powers.
In response to that invitation, Mr. Flaherty last week agreed with Ontario and B.C. to create a co-operative capital-markets regulatory system. The two provincial governments agreed to present the plan to the other provinces and invite their participation. The proposed new regulator would have an office in each participating province and would be run by a managing board answering to a council of finance ministers. It would exercise Parliament’s powers related to systemic risk in the financial system, data collection and criminal enforcement. It would exercise in each participating province that province’s powers over day-to-day securities trading.
Now that B.C. is on board, the political dynamic has shifted. Ontario’s 13.5 million people and B.C.’s 4.6 million between them account for more than half of Canada’s population and a much greater proportion of the corporate head offices and the investment activity. National securities regulation has now become a joint federal-provincial project that no longer smells like a few people in Ottawa and Toronto trying to run everything.
The agreement announced last week shows the federal government's wish to keep its project within the four corners of the Constitution and its willingness to tailor the project to the needs of participating provinces. But it also sets the clock running. The agreement says Ottawa and the participating provinces will publish their draft uniform securities acts and regulations for public comment next year and will bring the co-operative system into operation on July 1, 2015.
This co-operative system can provide better protection for the savings and investments of Manitobans than the present non-system. But if Manitoba continues to hang back, the new agency will be designed and built by others and may be ill-suited to Manitoba’s needs.
Quebec is likely to resist the co-operative project, seeing it as an intrusion on provincial powers. The matter may have to be fought out in court once again and may face further delays. But it now has enough horsepower to get off the ground. It offers Canadians more efficient and effective control of the securities business.
Mr. Selinger and Finance Minister Stan Struthers should expect a visit soon from Ontario and B.C. ministers to present the advantages of the new plan. They should listen carefully, propose refinements that would improve the scheme and allow Manitobans, as soon as possible, to enjoy the benefits of reformed capital-markets regulation.
» A version of this editorial recently appeared in the Winnipeg Free Press.
Republished from the Brandon Sun print edition September 30, 2013