Pension Pundit: A (semi) national regulator

On the face of it, Federal Finance Minister Jim Flaherty’s proposed Canadian Securities Act, which would usher in a single national securities regulator, sounds well and good. According to the Minister, it would allow Canada to speak with one voice on financial issues, do away with the current Byzantine regulatory patchwork, and remove costly duplication of services.

It would also bring us up to speed with our heavyweight G7 friends, all of whom have national regulators.

Indeed, several industry players have backed Flaherty in his efforts, including Scotiabank, the CFA Institute and the Investment Counsel Association of Canada, which have released statements lauding the effort as noble and long-overdue.

However, the idea has its share of detractors, not least of which are some of the provinces Flaherty wishes to bring to heel. Alberta and Quebec—normally the most improbable of partners—are taking the federal government to their respective provincial Courts of Appeal over the idea, a move that Flaherty deftly countered by presenting the legislation to the Supreme Court of Canada. Manitoba is only slightly less intransigent, demanding proof that it would be beneficial for that province to join a national regulator.

While most resistance is currently based on the “what’s in it for us?” argument, a broader question looms. As the Financial Post’s Terence Corcoran points out, “Canada is the only developed country without a national regulator and the only country not to be burned by the global financial crisis, therefore Canada will create a national regulator.”

Fatuous? Perhaps, but the track record of our G7 partners suggests that the existence of a national regulator does not guarantee the smooth operation of capital markets. The SEC failed spectacularly to prevent Bernie Madoff from robbing his high-flying coterie of clients blind, and the U.K.’s Financial Services Authority allowed Northern Rock to get into enough trouble to warrant nationalization. In the meantime, boring, plain-Jane Canada quietly chugs along, 13 regulatory systems and all.

It will be at least a year before the Supreme Court decides on the constitutionality of the new legislation, at which point it may get shot down, or the holdout provinces might change their mind. Meanwhile, Flaherty refuses to reveal where this new institution would live, knowing full well the words “Ottawa” or (even worse) “Toronto” will likely unleash a fresh torrent of indignation, particularly in Alberta and Quebec.

It’s probably a good strategy. One battle at a time.

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