The year 2018 was promised as the time that Canada's patchwork system of provincial securities regulators would be consolidated under a single regulatory body.
The effort to create a co-operative, pan-Canadian regulator, dubbed the Capital Markets Regulatory Authority, or CMRA, has been fraught with legal challenges, delays and interprovincial bickering. Currently, there are five provinces and one territory – Ontario, British Columbia, Saskatchewan, Prince Edward Island, New Brunswick and the Yukon – that have agreed to participate, while Quebec and Alberta staunchly oppose the plan.
But as the summer deadline for implementing the necessary legislation inches closer, and amid the looming uncertainty stemming from an ongoing Supreme Court case, industry observers are questioning the feasibility of the proposed timeline. Some are wondering whether the initiative will come to fruition at all.
"I think it's virtually certain that 2018 will come and go without there being an operational capital markets regulatory authority," says Frank Allen, executive director of investor advocacy group FAIR Canada. "The existing timeline has become stale."
It's unlikely that Ottawa and the participating provinces will make any major moves until the Supreme Court has decided whether or not the currently proposed model is unconstitutional, says Harvey Naglie, a former senior policy adviser with the Ontario Ministry of Finance.
The case is scheduled to be heard on March 22, but it's unknown how long a decision may take. Pushing ahead before the ruling would be "presumptuous and of no real value" because there is a real risk that the outcome might not be favourable, says Mr. Naglie, who authored a C.D. Howe report on the topic.
In an e-mailed statement, a spokesman for the CMRA said the participating provinces are "mindful" of the Supreme Court case and willing to take the time necessary to ensure a successful launch.
But Mr. Naglie believes the initiative has run out of steam.
"Politically, no one wants to be fingered as the jurisdiction that put a bullet in this thing," Mr. Naglie said. "Everybody is waiting for somebody else to make it go away."
The push to harmonize Canada's patchwork system of provincial securities regulators through the creation of a national regulator has been decades in the making. The most recent initiative was the personal crusade of former federal finance minister Jim Flaherty, who took to the cause after the financial crisis.
But efforts to create a pan-Canadian securities regulator go back as far as 1935, when the Royal Commission on Price Spreads recommended the creation of such an entity.
More serious cries emerged in the 1960s. Since then a number of proposals have been put forward but none have been successful – making Canada the only G20 nation that doesn't have a national regulator.
"The quest for a national securities regulator has become like a quest for the Holy Grail," said Edward Waitzer, a partner and head of the corporate governance group at Stikeman Elliot LLP. "You need a bunch of stars to align in terms of political leaders who view this as a priority and are prepared to expend political currency to make it happen."
The argument for a national regulator is that it will make the rules more consistent across the country, help regulators manage systemic risks, which are national in scope, and improve enforcement by making it easier to co-ordinate with police and prosecutors both within and outside of Canada.
Those opposed to the plan are concerned that the move is a power grab by Ottawa, or that regulation is better done on the local level, to take into account issues specific to that region. They argue that the current system, although imperfect, has evolved to become rather effective and that regulators have, for the most part, been able to coordinate their policymaking through the Canadian Securities Administrators. The CSA is an umbrella organization comprised of provincial securities regulators that aims to harmonize securities regulation across the country.
Some who were originally on board with the plan are not supportive of it in this particular iteration.
"I was drinking the Kool-Aid," said Mr. Naglie, who has backed previous initiatives to create a national regulator. "I was pouring the Kool-Aid," he adds.
Mr. Naglie believes the current model is a "significantly compromised plan B," noting that since it's not truly a national initiative, it won't be able to deliver on all of its promises. But the agency counters that the initiative represents a "significant step" toward consolidating capital-markets regulation in Canada.
"It does not create a national regulator and it does not purport to do so," a spokesman for the agency said in an e-mail. In addition, the current members …continue to encourage non-participating provinces and territories to join."
The most recent effort to create a unified securities regulator started in 2008, after a recommendation from a federal panel headed by Tom Hockin, a former president of the Investment Funds Institute of Canada. The federal government drafted an act and presented it to the Supreme Court in May of 2010 for advice on its constitutionality.
Alberta and Quebec both challenged the act in court, arguing that securities regulation falls squarely in the realm of the provinces. Appellate courts in both provinces agreed, and in 2011, the Supreme Court ruled unanimously against the model, saying that it went beyond the federal government's jurisdiction. But the ruling left the door open to a co-operative model, prompting the federal government to rewrite the legislation in accordance with the top court's guidance.
In 2013, they introduced a new version – this time structured as a co-operative agency run by those provinces and territories that choose to opt in. The revised model, which would be overseen by a council of ministers from each participating jurisdiction, was crafted specifically to ensure that the provinces are not ceding power to Ottawa.
But Quebec was still not satisfied and took the case back to court, with concerns about Ottawa's plan to give the federal finance minister a veto on major decisions. The Quebec Court of Appeal struck down the revised model last May, leaving the final word up to the Supreme Court of Canada.
Lawrence Ritchie, a partner at law firm Osler, Hoskin & Harcourt LLP, says that even a negative ruling from the court doesn't have to spell death for the unified regulator – it may simply mean that more tweaks are required to the legislation.
"But if they get a positive ruling, that could give a needed push to the initiative," said Mr. Ritchie, a key player in an earlier effort to create a national regulator.
Although observers have become skeptical of the timeline, noting that many previous deadlines have come and gone over the years, there has been some promising action recently. A CEO – former TMX Group executive Kevan Cowan – was put in place. A board of directors was chosen.
"It appears that there have been steps that indicate progress," said Anita Anand, a law professor at the University of Toronto who authored a white paper on the topic for FAIR Canada.
Unlike Mr. Naglie, Ms. Anand says she's confident that the participating provinces are still pushing forward. But she has significant concerns about the current iteration of the proposed co-operative regulator. Many of the investor-protection initiatives that have been undertaken by the Ontario Securities Commission – such as an investor advisory panel and a whistleblower program that includes a financial incentive – are not currently part of the plan for the co-operative regulator.
"The Ontario Securities Commission, over the past five years or so, has made significant strides in improving the representation of investors' interests in the policy-making progress," said Ms. Anand, who also serves as the J.R. Kimber chair in investor protection and corporate governance at the University of Toronto. "It is extremely important to ensure that those initiatives are carried forward into the proposed model before it becomes final."
Some of the issues raised by Ms. Anand and FAIR Canada are currently being considered to see whether they can be resolved prior to launch, the CMRA said.
"The specific initiatives noted by FAIR Canada are all useful, but do not require legislation," the agency said in an e-mail. The flexible regulatory platform being proposed would allow the board of directors to implement changes quickly, without going back to each province for approval, the agency added.
There are a number of hurdles ahead for the CMRA, but Ms. Anand says she believes they can be overcome.
"In order to create a successful co-operative securities regulator, however, significant steps should be taken towards ensuring that investors' interests are protected," she adds.