Canada Takes First Step Toward National Securities

UNCLAS SECTION 01 OF 02 TORONTO 000147

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E.O. 12958: N/A
TAGS: ECON EFIN EINT EINV PGOV CA
SUBJECT: Canada Takes First Step Toward National Securities
Regulator

Ref: 07 Toronto 160

Sensitive But Unclassified -- protect accordingly.

This is a joint Embassy Ottawa-ConGen Toronto message.


1. (SBU) Summary: Canada has taken the first step toward the
creation of a national securities regulator with the creation of the
Canadian Securities Transition Office (CSTC). The CSTC will lead
the effort to establish a national regulator (e.g., addressing
provincial concerns) and help the federal government develop
appropriate legislation. The Ontario Securities Commission (OSC) -
which oversees Canada's largest securities market - supports the
creation of a national securities regulator, while the provinces of
Alberta, Quebec, and Manitoba are currently opposed. The CSTC and
the federal government will need to overcome this provincial
opposition before a single national securities regulator can be
created. End Summary.

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Transition Office
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2. (SBU) Canada took the first step towards implementing a national
securities regulator on June 22 when federal Finance Minister Jim
Flaherty launched the Canadian Securities Transition Office. Canada
is the only G-7 country without a national regulator. The Office
will act as intermediary between Canada's federal government and the
thirteen provincial and territorial securities regulators, and help
develop national securities legislation.

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Transition Leadership
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3. (SBU) The transition team will be led by Doug Hyndman, current
chair of the British Columbia Securities Commission (BCSC),and
Ontario's Bryan Davies, who will be vice-chair. British Columbia
and a number of other provinces had been opposed to a national
regulator over fears that a single regulatory body would be
dominated by Ontario, home to Canada's largest stock exchange and
the third largest in North America -- the Toronto Stock Exchange
(TSX) (reftel). Hyndman attributes British Columbia's newfound
support to the influence of a "core group of provinces" that chose
to move in the direction of a single regulator. Hyndman is
well-respected by his peers, considered credible, and will likely
strive to protect his region's interests.

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Ontario's Support
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4. (SBU) An Ontario Securities Commission (OSC) official told ConGen
Toronto that the OSC was pleased with Minister Flaherty's move
toward a national securities regulator, which the OSC has long
supported. (In the GOC's 2009 budget, Flaherty had allocated C$154
million to set up a national regulator by 2010.) Though the OSC is
one of Canada's strongest supporters of a single regulator, our
contact stated that the OSC is not leading the Transition Office
because it wants to avoid criticism that the Office is too
Ontario-centric. However, the OSC will participate in a yet-to-be
announced advisory council and transition team. While the site of a
possible national regulator is up for negotiation - perhaps in
exchange for buy-in from several reluctant regional regulators - it
almost certainly will have a significant presence in Toronto.

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Provincial Consequences and Opposition
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5. (SBU) Although regional securities regulators have largely
harmonized their rules, there are redundant fees, costs, and
paperwork arising from Canada's thirteen provincial and territorial
securities regulators. Provincial participation in the new
transitional arrangement will be voluntary, and it is unclear
whether provinces choosing to join a national regulatory program
will have to repeal their own provincial securities legislation.
(Note: In Canada, property and civil rights fall under provincial
jurisdiction, while trade and commerce fall under federal
jurisdiction; some powers overlap.) The C$154 million earmarked to
set up the national body would likely be used to compensate smaller
jurisdictions for lost revenues generated from market and settlement

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fees, according to our OSC contact. (The governments of Ontario,
Quebec, Alberta, and British Columbia do not earn revenues from
their provinces' securities regulators.)


6. (U) Both Alberta and Quebec oppose a single national regulator,
and have threatened to take the issue to court. Alberta Premier Ed
Stelmach objects because a national regulator would not - according
to Stelmach - understand the operations of companies involved in
high-risk petroleum exploration projects - a mainstay of his
province's economy. Quebec Premier Jean Charest has said that he
opposes a single regulator because securities regulation is a
provincial responsibility under the Canadian Constitution.

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Hockin Report
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7. (SBU) The Harper Government is basing its support for a single
regulator on a recent report on securities regulation prepared by a
panel of Canada's business leaders (the "Hockin Report"). The
report states that a single securities regulator would:

-- improve accountability between regulators and governments;
-- create consistent securities regulation and enforcement across
Canada;
-- reduce the compliance frustrations and costs of small and
medium-sized firms seeking to expand beyond their home province;
-- overcome perceptions among foreign would-be investors of a
fragmented Canadian regulatory system;
-- enhance Canada's attractiveness as a destination for both
domestic and foreign investment; and
-- enable Canada to speak with one voice at the International
Organization of Securities Commissions and other international
forums.


8. (SBU) Comment: From a U.S. perspective, a single Canadian
regulator would make it easier for American investors to do business
in Canada, provide a single point of contact for U.S. securities
regulators, and make Canada a more effective ally at international
financial forums. Moreover, the prospect of improved securities
regulation in Canada could help improve the overall health of the
international financial system. The Hockin Report also highlighted
concerns about laxity in Canadian securities enforcement.
Interested parties consulted by the Hockin panel indicated that U.S.
law enforcement bodies appear to have greater success in prosecuting
Canadians who commit capital markets crime than Canadian
authorities. One manager of a large Canadian pension fund stated
that his fund has a policy of purchasing Canadian stock on U.S.
stock exchanges in order to have the benefit of U.S. enforcement and
redress.


9. (SBU) Comment (cont.): In the mid-1990s, Canada tried, but failed
to establish a national regulator. A major roadblock at the time
was that the OSC was not self-funded (since changed),and Ontario
insisted on being compensated millions of dollars to transfer its
securities oversight to the federal government. Now, Ontario
supports the GOC's efforts with an expectation that it will emerge
as the dominant player in any single securities regulator. While
there is non-partisan support at the federal level for a national
regulator, its success depends largely on convincing Alberta,
Manitoba, and Quebec to support a single regulator. It remains to
be seen if the continued volatility of global financial markets and
the inherent inefficiencies of a splintered oversight system will
help push a national securities regulator past a group of reluctant,
self-interested provincial capital markets.

NAY