A move is afoot to centralize securities regulation in Ottawa, wresting from the provinces the 13 local registries they now maintain and which are the bane of those who, literally, would invest in Canada.
Security law includes stocks, bonds and other similar investment instruments, and those that buy, sell and administer them. While the tools are the backbone of the economy, the underpinning law represents a significant segment of Canadian law, highly specialized, very complicated, and very lucrative to those converse therein.
Decades of Squabbling
Better examples of overdue national economic union could hardly be found. Of the G7 nations France, Germany, Italy, Japan, the United Kingdom and the United States, Canada stands alone without a centralized securities watchdog.
In spite of the joy that comes from overseas as Europe reaps the benefit of economic (and political) union, when Canada exercises central government initiative, it does so almost apologetically and rarely garners coast-to-coast support. In addition, Canadian securities law is so complex that a bewildered Canadian public cannot possibly express let alone hold an opinion; creating an even greater reliance on government wisdom - this, in spite of the fact that unemployment figures and stock indices are joined at the hip.
There may be little value in pointing the finger at who's to blame for the status quo except the usual suspects: lawyers make money on the complexity of law so any movement to simplify would, for economic reasons, be resisted by the bar. International investors decry the fractionalization of security regulation and administration in Canada, which requires stock managers to register in each provincial jurisdiction in which they seek to raise capital or manage funds.
By contrast, since 1934, the United States has had but one central agency, the U. S. Securities and Exchange Commission (SEC). There are no comprehensive U.S. state security regulators although some states regulate consumer investors.
After almost 40 years of debate and pressure from Canada's trading partners, and in the wake of continental security scandals and stock market meltdowns, and the resultant recession and unemployment, the federal Parliament will inevitably entertain a bill to create a super-federal agency to regulate securities across Canada. The powerless, pro forma Canadian Senate has been teasing the government for years with bills to create a single, national securities commission, but all, as with any Senate bill, dying on the Order Paper.
Self-Help
In anticipation or sheer frustration, the provincial regulators have teamed up to create a self-help, self-regulating body, the Canadian Securities Administrators - styled CSA, a trade-mark they will have to share with the Canadian Standards Association. Judging from the military name the CSA has given its new policy for national dealer registration, it's hard to tell which is which: NI 31-103! But users know it as a national passport system: one-stop certification for security sector professionals.
The CSA proposal has also been controversial and because it's based on the prospect of provincial buy-in, it may end up in the Good Idea Cemetery.
But self-regulation bodies are not the meat and potatoes of the law. Rather, they support the administration of law. It's good to decertify the errant investment advisor but what the people really need is good law in the first place. The real McCoy is the heralded national securities bill, bandied about as a Securities Act, and issue of a national consultation undertaken in 2008 by a group created by Jim Flaherty, the federal Minister of Finance (the baton was passed from Tory to Tory: the chair of the panel was former Conservative finance minister Tom Hockin).
The Expert Panel on Securities Regulation issued its report on January 12, 2009 after only ten months of consultations, referring to "Canada’s fragmented system of 13 regulators, none of whom are accountable for the stability of our national markets ... a serious shortcoming in Canada’s system of financial regulation."
More chilling were the words:
"As billions of dollars move around the globe at the click of a mouse, investors will not tolerate outdated, cumbersome, or duplicative systems. And investors will not tolerate poor enforcement of securities law. If Canada is to realize its potential in the global economy, the regulation of its financial markets must be among the world’s best. At the moment, it is not."
The Panel recommended the creation of a new bureaucracy, a quasi-judicial body, the Canadian Securities Commission (CSC), to develop coast-to-coast securities law-making activities as well as the investigation and prosecution of relevant offences. One law, one agency, one stop-shopping.
The Panel included one practising lawyer, Heather Zordel, a career securities solicitor. Zordel sports an LL.M. and is comfortably ensconced at Cassels Brock law firm in Toronto. Her web profile boasts the pretentious statements that she is one of the "Top 500 Lawyers in Canada". She was not alone on the panel. The report states that the panel also received legal advice from a blue-chip committee of six other lawyers, all well-pedigreed in Canadian securities law, but three of which practise in Toronto: a great talent pool from which to extract appointments to the proposed CSC.
Other significant national securities industry players, such as the Investment Industry Association of Canada and the old boy's Canadian Bankers Association, have thrown themselves behind the Expert Panel's initiative.
Bien ... non!
Quebec is nonplussed, even though the current chair of the CSA is a Quebecer. The Quebec government has announced it will file a court challenge, a reference to stop the initiative, describing the federal initiative as a jurisdiction grab. Securities regulation is a matter of provincial jurisdiction, says La Belle Province. Meanwhile, Quebec separatists bandy the politically charged N word ("nationalization"). There's also the unresolved and highly political issue of French language requirements for financial reporting under a national securities scheme.
Quebec is not alone. The governments of Manitoba and Alberta have also gone on record opposing the national initiative.
Meanwhile, Canada's largest province wants the plum. Ontario has rejected the CSA's passport solution and seeks for Toronto, the new national securities regulator head office. With that comes not only international financial recognition as Canada's financial capital, but also the wealthy cottage industry of securities law, with a crew of hundreds of top-paid securities lawyers and their staff and paralegals.
The federal government believes that it has constitutional jurisdiction. The pith and substance of the proposal, they say, is plain and simple, trade and commerce.
Carrot and Stick
The feds, like many Canadians, ought to be fed up of debate on this issue and like good political masters, wave both carrot and stick to get the job done.
The federal Finance Minister, William Flaherty, has stated that his government will man an end-run against the renegades by simply signing up their players directly. By offering all-Canada credibility to investors, provincial arguments about jurisdiction will be like the tree that falls in an empty forest.
While the investment community blows hot and cold, security lawyers in most provincial financial capitals are having garage sales and will soon have to either find another area of the law, or move to Toronto or Ottawa, whichever is chosen to house the CSC.
Montreal and Vancouver, in particular, will be devastated by the securities law work and an end to the corporate retainers which come with it. Those clients, quite reasonably, will opt to retain law firms in the city of the new national agency head office.
But then, in June of 2009, the federal government blinked.
Rather than leadership of tabling a government bill in the House of Commons, the Minister of Finance prolonged the uncertainty by creating yet another interim body, an aptly-named Canadian Securities Regulator Transition Office, which is tasked with the job of mending bridges and seeking consensus while trying to bring the HMCS CSC into port - as if history has taught Jim Flaherty nothing.
In the ill-advised lull, and in the midst of an embarrassing $50-million investment fraud trial being heard in Montreal, Quebec's finance minister has jumped in the fray. In July, Raymond Bachand announced a constitutional challenge to the federal government's alleged jurisdiction to regulate in an area which the province declares its own.
For this, they will go straight to the Quebec Court of Appeal and for a spell soon thereafter, Ottawa will host securities lawyers as the debate then moves to the Supreme Court building in Ottawa.
As this pans out, the small army of soon-to-be orphaned Vancouver and Montreal securities lawyers - even those in the "Top 500 in Canada" - have a chance to bring their pinstripe Gucci suits to the local Sally Ann, host garage sales and buy something on Lake Ontario ... or retrain - fast. The money's not as good but motivated, albeit rookie barristers, are always needed in poverty law.
REFERENCES:
- Autorité des marchés financiers du Québec, La Mise En Place d'une Commission Unique des Valeurs Mobilières: Un Projet Inutile, July 2008
- Canadian Securities Administrators
- Carmichael, K. and Brethour, P., Hockin Panel Calls For National Regulator, The Globe and Mail, January 13, 2009, retrieved on Aug 23, 2009 from www.bnn.ca/news/6049.html
- Expert Panel on Securities Regulation, official website
- Shecter, B., Three Provinces Balk at Single Regulator, Financial Post, January 12, 2009, retrieved from http://www.financialpost.com/story.html?id=1169231 on August 22, 2009
- United States Securities and Exchange Commission