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Proposal to scatter regulator offices a 'huge step backward'

A controversial proposal to create a new national securities regulator without a head office simply replaces one patchwork system with another, critics of the plan say.

The proposed Canadian Securities Regulatory Authority would rely on a diffuse group of regional offices to oversee the country's securities markets, much like the current group of provincial regulators that has long been criticized as splintered and often ineffective.

A transition office designing the new regulator released its first detailed proposal Tuesday on the structure of the proposed CSRA. Rather than working at a centralized headquarters, senior officials of the CSRA would be spread out among the various regional offices in participating provinces.

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The scattered organizational structure is aimed at defusing a major political battle building among various provinces over the location of the head office for the CSRA. Ontario has insisted the head office should be located in Toronto while other provinces have insisted they will not join a new national regulator if it is dominated by Ontario.

"We continue to be opposed to federal intrusion into what we believe to be provincial jurisdiction," Robyn Cochrane, a spokeswoman in Alberta's Ministry of Finance and Enterprise said Tuesday. "We're disappointed that the federal government continues to move ahead."

The CSRA plan does not suggest where the chief executive officer - to be called the chief regulator - should be based. The report suggests executives would travel frequently and communicate by video conferencing to work together.


Critics said the compromise is too awkward and risks creating a decentralized regulatory system that doesn't improve significantly on the existing 13 separate provincial and territorial securities regulators across the country.

"I think that what this proposal does is it really cuts away significantly at the rationale for a national commission," said Joe Groia, a prominent Toronto securities lawyer.

He said many people in Canada who have long fought for a single national regulator expected there would be a central authority to lead it - in addition to regional offices across the country. "I see it as a huge step backward," he said.

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It would be unthinkable to house the National Energy Board outside Alberta or the Canadian Wheat Board outside the Prairie provinces, said Matthew Mendelsohn, director of the Mowat Centre at the University of Toronto, a public-policy research group.

"Yet we are perfectly happy to put financial regulation outside of the heart of activity simply because it's Toronto," he said. The centre said in a report the proposed structure is "a mistake" because it is essential to concentrate regulatory authority where market activity takes place.

The report suggests provinces should be given a deadline of next July 1 to decide whether they will join the new regulator.

British Columbia Finance Minister Colin Hansen said Tuesday he is "encouraged" by the direction of the plan.

"Distributing senior management and executives of the CSRA in offices throughout the country is a positive signal that the CSRA will not be a centralized, unresponsive agency," he said in a statement.

Quebec and Alberta have been strongly opposing the plan and have launched court challenges of the proposal. Manitoba has not appointed any representative to the board overseeing the work of the transition office to date. Quebec officials weren't available to comment.

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In Ontario, a spokesman for Finance Minister Dwight Duncan reiterated the province's long-standing position that the head office must be in Toronto. "We're going to continue to promote that," Andrew Chornenky said.

Douglas Hyndman, who is heading the transition team designing the new regulator, said Tuesday the proposal is "a big improvement" over the current system, where there is no single management team headed by a CEO. And it would ensure market participants have direct access to regulators while CSRA staff remain in touch with issues in all regions.

"We're not trying to design an organization that will fit somebody's preconceived model of what it should look like, but to design an organization that will fit the market it's going to regulate," he said. "Investors are spread across the whole country. They need regulation where they are."

Transition office executive vice-president Larry Ritchie said many professional firms, like accounting and legal firms, have a variety of regional offices with distributed decision-making, but still have "a place where the buck stops" with a CEO.

"This is not a situation where you have a patchwork or a diffused, unaccountable series of decision-makers," he said. "You have a team of executives who happen to be distributed across the country but collectively are accountable through the chief regulator."

The intense focus on the location of the head office is "highly overdone," said Ian Russell, chief executive officer of the Investment Industry Association of Canada, which represents brokerage firms.

He said the key is how well the new organization operates to serve market registrants and investors, especially the large proportion of the business community based in Ontario.

"There'll be a large infrastructure here, and I think that's the main point," Mr. Russell said. "The principal operations would be in Toronto. That's more important than where the chief regulator is based."

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About the Authors
Real Estate Reporter

Janet McFarland is the real estate reporter for The Globe and Mail’s Report on Business, with a focus on residential real estate trends. She joined Report on Business in 1995, and has specialized in reporting on corporate governance, executive compensation, pension policy, business law, securities regulation and enforcement of white-collar crime. More

Karen Howlett is a national reporter based in Toronto. She returned to the newsroom in 2013 after covering Ontario politics at The Globe’s Queen’s Park bureau for seven years. Prior to that, she worked in the paper’s Vancouver bureau and in The Report on Business, where she covered a variety of beats, including financial services and securities regulation. More

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