OTTAWA/TORONTO (Reuters) - Canada promised a crackdown on market abuses on Wednesday when it introduced a draft law to set up a national securities regulator, but a showdown looms with two provinces that want to preserve their own powers.
The proposed national watchdog would replace the current system of 13 provincial and territorial agencies that oversee stock and bond markets. Canada currently is the only industrialized country that does not have a single regulator.
Finance Minister Jim Flaherty said it would cut costs and make it easier to crack down on white-collar crime.
“Those who commit securities fraud will face a tougher, more comprehensive regime. No more falling through the cracks,” Flaherty told reporters.
Under Flaherty’s proposal, the legislation would become the vehicle to prosecute securities fraud, market manipulation, prohibitive insider trading and misrepresentation across Canada.
Provinces and territories would have the right to opt out of the new system but the national regulator could still pursue wrongdoers for offenses committed in such jurisdictions.
While bankers and investment dealers welcomed the plan. Alberta and Quebec, two rich and influential provinces, fretted about dilution of their sovereignty.
Daniel Paille, a legislator from the separatist Bloc Quebecois, said in the House of Commons that the proposed regulator would be “a predator, a plunderer, a vandal (and) a thief of Quebec’s sovereignty.”
Before asking Parliament to approve the law, Flaherty will ask the Supreme Court to rule on whether the federal government has the constitutional power to act on securities issues, an area that some provinces say is their exclusive jurisdiction.
He said he expects a favorable ruling from Canada’s top court by next year, and aims to launch the new agency in 2012.
Quebec and Alberta have said a national regulator encroaches on provincial powers, hampers economic development and would fail to take advantage of local expertise.
“I‘m concerned the federal government continues to push ahead with its agenda to usurp provincial authority over securities regulation in the absence of any evidence the current system needs fixing,” Alberta Finance Minister Ted Morton said.
“Alberta is not opposed to improving on the system we have, but we are opposed to the federal government acting unilaterally in an area that is provincial jurisdiction.”
Poonam Puri, a law professor at Osgoode Hall Law School in Toronto, said a jurisdiction that does not opt into the system could become less competitive than jurisdictions that join. Investors in jurisdictions outside the system may lose out on investment opportunities.
“A national regulator will be a single focus of accountability for investors, for businesses and for governments,” said Puri, research director for the January 2009 Hockin Panel. It issued the latest of a handful of government-linked reports over the past 40 years that have advocated for a single regulator.
Philip Anisman, a prominent Toronto securities lawyer who wrote a report advocating for a national regime in the late 1970s, said the current system was “colossally slow” in joint investigations and rule-making.
“The influence of any provincial commissions that decide not to participate will inevitably be diminished in light of national goals,” said Anisman, referring to the desire for countries to coordinate in areas of financial stability and systemic risk prevention.
A contrary argument is that provinces have local specialization that a single regulator could put at risk. There is also concern that national regulators have missed fraud in bigger countries than Canada.
Additional reporting by David Ljunggren and Scott Haggett; Editing by Janet Guttsman