Fragmented securities regulation bad for Canada One law, one day?

The political scientist Eugene Forsey (1904-1991) — one of the few people ever able to turn a discussion about tax points into a vivid tableau — once suggested that a suitable flag for Canada would display ten jackasses eating the leaves from a single maple tree. His image was an unkind but deadly accurate depiction of much of the country’s jurisdictional wrangles.

Turf warfare between national and provincial governments in this country dates back to John A. MacDonald’s slapping out Oliver Mowat in the Commons shortly after Confederation. It now stultifies our national securities markets in the name, evidently, of regional diversity.

The Canadian government, in a rare fit of common sense, sent up a trial balloon last May, asking provincial governments whether they would be ready to transfer regulatory powers to the national level, but we have heard no more. Quebec, with a separatist government, was obviously having none of it; but equally other provinces seem to be guarding their legislative sphere just as jealously. (They are never quite so delicate about the Constitution when seeking powers explicitly reserved to the national government.)

The argument at the political level generally runs along two lines: that regions are better served by securities legislation that is “responsive” to regional concerns, and that securities legislation should serve provincial economic goals. Both arguments are specious.

The first assumes that regional concerns are automatically more important than national ones, which is an empty nostrum that takes the place of analysis. A subsidiary argument, often heard from the west, is that junior resource companies are better served by securities laws drafted in the “resource-rich” west. A glance at the state of the mining industry in British Columbia should put the lie to that fairly effectively.

The second argument tends to be a Quebec specialty: that the province, apart from having a civil law legal system that is unique in Canada, also has a special economic mission. This is the “Quebec Inc.” argument that has created the province’s quasi-governmental investment funds, charming moneymakers all.

This debate-in-a-bottle has gone on while the self-regulating part of the industry, the exchanges, have essentially consolidated into one equity market, one financial-derivatives exchange, and one commodity exchange. Until two years ago, that same number of exchanges fit neatly into the city-state of Singapore, under, needless to say, one financial regulator.

While those at the political level posture about regional needs and local responsiveness, the bureaucrats themselves have shown a praiseworthy willingness to fix what they can through the umbrella organization of the provincial regulators, the Canadian Securities Administrators (CSA). They have brought about a welcome harmonization of the listing and trading rules, and most of all, seen to the creation of the centralized disclosure system, the System for Electronic Document Analysis and Retrieval (SEDAR). A second system, the System for Electronic Disclosure by Insiders, is on the way, though it is currently hampered by technical problems.

It is notable that the Quebec Securities Commission has been an active participant in the process, while cautioning that Quebec’s civil law legal tradition will force provincial regulators to “harmonize” regulation rather than make it uniform across the country.

But the cost of having these welcome developments happen in spite of the politicians, rather than because of them, is that the new regulations are being made by regulators acting (perfectly legitimately) under the authority of acts of provincial legislatures. They are not being made by the legislators themselves, and that places the rules at one further remove from the people. Considering the busy work some of our elected representatives get up to, it doesn’t seem unfair to expect them to devote a certain amount of their time to something that might actually do some good.

Having legislators making the country’s securities laws through a new national securities act would not just be a gesture to governmental and constitutional purity; it would offer a chance to develop a regulatory regime from the bottom up, and would allow the country to shed a relic that has clung to us for too long — a costly and fragmented legal foundation for what should be a vibrant securities market.