12/22/2011 12:06 EST | Updated 02/21/2012 05:12 EST

Top court sends Flaherty back to the drawing board for securities regulator

OTTAWA - Canada's largest stock market watchdog is moving ahead with plans to speed up enforcement and says it will be business as usual with other provinces after the Supreme Court scrapped a planned national securities regulator.

Ontario Securities Commission chairman Howard Wetston said Thursday the regulator is focused on the best interests of its own investors and companies , though it will review a Supreme Court ruling that quashed the federal plan when it has time.

The regulator of Canada's dominant stock exchange — the TSX — has been developing new rules aimed at speeding up enforcement for securities law cases such as insider trading that drag on for years

"We are currently dealing with important policy, enforcement, market infrastructure and other matters that will require our full commitment," Wetston said in a statement.

"With respect to national regulatory initiatives, we will continue to work with other provincial and territorial securities regulators."

The Supreme Court turned down Finance Minister Jim Flaherty's plan as unconstitutional, which effectively puts an end to a years-long push for a unified body to oversee capital markets.

But the court acknowledged Ottawa has a role in addressing systemic risk to the financial system and left the door open for a national regulator, if it can get the provinces onside.

That may not prove easy, since Quebec, Alberta and British Columbia have opposed change from the beginning, saying the current system works fine and Flaherty's proposal impinges on provincial jurisdiction. Ontario supported the idea of a national regulator as the province is the home of the TSX, Canada's dominant stock market.

Several provinces said they would work to strengthen the current passport system where participating provinces recognize securities filings in other jurisdictions.

Ontario Finance Minister Dwight Duncan, whose province does not participate in the system, said it would examine any proposal carefully.

"That's what the other provinces would advocate and if that's all they're willing to do, we'll do what we can," he said of strengthening the current regime.

In its decision, the court said Ottawa and the provinces could exercise their respective powers over securities together "in the spirit of co-operative federalism."

"The experience of other federations in the field of securities regulation, while a function of their own constitutional requirements, suggests that a co-operative approach might usefully be explored," the court said in its unanimous decision.

Flaherty said the government would review the decision carefully before making any decisions about future plans.

"If I was betting, I'd would think there is still going to be some provincial resistance," said Ian Russell, president and chief executive of the Investment Industry Association of Canada.

But Queen's University professor Tom Courchene said Ottawa can still move ahead with some of the goals it wasnted to reach through a single regulator, including improved policing of the capital markets.

"Whatever Flaherty was intending to do to increase and make more effective the criminal law power, he should do that now," Courchene said.

"The provinces can't really worry about criminal law, it is federal jurisdiction. So there is an ideal place for co-operation with the federal government."

The Ontario regulator has been working on new rules to encourage people to settle disputes without admitting any wrongdoing in an effort to speed up the enforcement of securities laws.

The OSC is bringing in "no contest settlement" measures to deal with insider trading and other stock-related securities law breaches that will allow people to settle cases against them without having to explicitly admit any wrongdoing.

The settlements would be similar to programs in the United States and at Canada's Competition Bureau, the federal body where Wetston used to work.

The OSC has also brought in a program under which companies would not be subject to enforcement action if they voluntarily report any potential breaches of provincial securities laws, or any actions considered contrary to the public interest.

Alberta, a vocal opponent to Flaherty's plan, said Thursday it was willing to work co-operatively with the provinces and the federal government moving forward.

"At the end of the day, we all share the same goal—a stable, fair and efficient securities system that protects investors and is a model recognized as among the best in the world," said Alberta Finance Minister Ron Liepert.

However, Quebec remains a key sticking point, though it too has pledged to keep working with the other provinces under the current system.

"We have among the best systems in the world at the level of the regulation and oversight of securities. It's not just the minister of finance that says this, it's also the OECD and the World Bank that says this," Quebec Finance Minister Raymond Bachand said Thursday.

"We have a harmonized system, we have a national system but we don't have a central system and that's the big difference with what the government of Canada tried to do."

Canada is the only country in the G20 without a national securities regulator.

The securities industry in Canada is currently administered independently by the provinces and territories, although jurisdictions co-operate under what is called the "passport" arrangement. Ottawa has argued the present approach is cumbersome, costly and not effective in detecting and enforcing fraud.