Analysis: Canada may settle for markets watchdog with less bite

Tue May 28, 2013 7:02am EDT
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By Louise Egan and Alastair Sharp

OTTAWA/TORONTO (Reuters) - Canada is pushing ahead with plans to create a new but watered-down version of a national securities regulator as its campaign to create a more powerful watchdog like the U.S. Securities and Exchange Commission appears to be headed toward failure.

The Conservative government's new plan would bypass the country's powerful provinces and focus on detecting market risk, sources familiar with the process told Reuters. This alternative, however, is unlikely to impress investors and the financial industry given its limited powers and the potential for duplication and more bureaucracy, industry officials say.

Ottawa has tried for decades to replace a patchwork of 13 provincial regulators with a single agency more in tune with today's globalized markets, arguing it would reduce costs and give it more clout to deal with the cross-border effects of reforms like the U.S. Volcker Rule.

It would also make it easier to prosecute corporations such as Sino-Forest Corp, one of several North American-listed companies with Chinese operations whose accounting or disclosure practices have come under scrutiny.

Although Canada is recognized internationally for its robust banking sector, it has been criticized by the International Monetary Fund for being the only advanced economy without a national securities regulator.

Canadian Finance Minister Jim Flaherty has pushed harder on this issue than his predecessors, but hopes last year of a breakthrough deal have all but died.

Flaherty has since spoken publicly about taking unilateral action on a far less ambitious plan -- a federal body with a narrow mandate to monitor capital markets for "systemic risk," or threats to financial stability.

"We have tried greatly and repeatedly to get a majority of the provinces ... to join with us in a joint regulator," a visibly frustrated Flaherty recently told lawmakers.   Continued...