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Stock watchdog to work in regional offices

OTTAWA - Canada's new national securities watchdog will be among the most decentralized in the world, with no headquarters and a strong presence in every participating province, according to a draft plan.

OTTAWA - Canada's new national securities watchdog will be among the most decentralized in the world, with no headquarters and a strong presence in every participating province, according to a draft plan.

But already opposition is building to the key element in the 54-page "transition plan" released Tuesday by Doug Hyndman, a former securities regulator in British Columbia, charged with shepherding the process toward establishment of Canada's first national regulator.

The hurdles are formidable. Only Ontario, the heart of Canada's securities industry, is unequivocally on side with Ottawa's initiative.

A majority of provinces fall somewhere between supporting the concept in principle to waiting for the final details to emerge.

Meanwhile, Quebec and Alberta are contesting the issue in the courts.

And Finance Minister Jim Flaherty has attempted to override the provincial court challenges by asking the Supreme Court of Canada on whether Ottawa can proceed.

A decision by the Supreme Court, which could theoretically stop the process on its tracks, is expected to take up to two years.

With Ontario insisting that the new Crown corporation, which will be known as the Canadian Securities Regulatory Authority, be located in Toronto another barrier appears to have been erected.

"We're home to most of Canada's investment mutual fund dealers, the head offices for the five largest banks, Canada's senior stock exchange, as well as already having the largest provincial securities regulator," said Andrew Chornenky, spokesman for Ontario Finance Minister Dwight Duncan.

He added Ontario does not see the issue as being settled.

The novel concept of a decentralized structure is seen as an attempt to persuade smaller provinces suspicious that Ontario would retain most of the authority.

Janet Ecker of the Toronto Financial Services Alliance sympathized with Flaherty, a former colleague in the Mike Harris government.

"Politics is the art of the possible and there's no question there are regional sensitivities here that Mr. Flaherty can't ignore," she said.

"On the one hand we welcome this step ... (but) we remain of the view it would make business and pragmatic sense to have a head office in Toronto, and we will continue to articulate that view."

In an interview, Hyndman defended the structure, although he could not name another country that has organized its securities regulator in such a way.

"Yes the system is unique. Canada is a unique country," he said

He maintained that having decision-makers spread across the country makes practical sense.

"There are investors and public companies and brokerage firms spread all across Canada. We need people where the activity is on the ground, not where trades are going through the computer," he explained.

The plan goes to great lengths to rationalize the structure, directing that board meetings and policy forums be held regularly across the country, that decision-making be typically made at local offices, and that the leadership team be "highly mobile."

The only concession to the fact that most of the employees of the new CSRA, as well as most of the activities, will take place in Toronto, is the recommendation that "the specific location (of executive directors) will be based on practical considerations."

The plan also makes no mention of where the chief regulator will call home.

While potentially cumbersome, "for the most part, whether you have a head office or not should not impact public companies that need to deal with a regulator," said Gordon Raman, a partner with law firm Borden Ladner Gervais's securities group.

He said the new body will likely concentrate expertise where it makes most sense — Alberta for oil and gas issues, B.C. and Ontario for mining, and Toronto for financial services and investment funds.

Hyndman set July 1, 2012, as a target date for launching the national securities regulator, and next July as a working deadline for when provinces must indicate whether they are opting in.

Canada is the only major industrialized country without a national securities regulator. Each province and territory policies its own regulations, at the same time co-ordinating their efforts through what is known as a passport system.

"We have the opportunities to do some things that can't be done under the current system, more integrated enforcement ... in order to provide better deterrent against securities fraud," said Hyndman.

In addition, Canada can play a greater role in international reform of the financial sector if it can speak with one voice, he said.

 
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