The federal government announced Thursday that it will head back to the drawing board following a court verdict that scuttled its original plans for a national securities regulator.
Ottawa still hopes to create a national body, more limited in scope and in collaboration with the provinces, that would play a role in monitoring long-term risks to financial markets.
Finance Minister Jim Flaherty delivered his most elaborate public reaction since last month's critical ruling by the Supreme Court of Canada.
That decision may have quashed the decade-old project, touted by successive governments, to create a one-stop shop for the country's securities regulation.
But Flaherty pointed out that there's still room for a federal role.
"It's clear in the Supreme Court of Canada judgment that the day-to-day regulation of securities will remain with the provinces," Flaherty said in an interview.
"But (the court) also said that there is an area of federal jurisdiction, including national standards and systemic risk. So I hope — and we'll see — I hope that we can make an arrangement with the provinces to proceed with a Canadian securities regulator."
Ottawa can have a regulatory role
He made the remarks in an interview in Switzerland, at the Davos economic summit.
Flaherty said that last month, when the Supreme Court ruled that securities regulation was a provincial responsibility, it also agreed that the feds could participate in the oversight of general and systemic risks.
"It's very difficult to deal with any significant financial issue in Canada without the involvement of the Government of Canada," he said, "because so much of the financial world applies to many provinces and territories, not just one."
To play that role, Flaherty said the federal government would need to create a new organization.
He said the task could not simply be handed to the existing Office of the Superintendent of Financial Institutions. That agency, he said, oversees banks and insurance companies and the additional role could create a conflict of interest.
Flaherty said he has already discussed his plan with some provincial counterparts. He said the idea has been well received.
"The reception has been fairly good (from the provinces)," he said. "There's a recognition that the decision by the court found that there is some federal jurisdiction and certainly some provincial jurisdiction —not 100 per cent one way or the other — so we need to talk to each other."
Room for discussion
However, he said he has not yet discussed it with Quebec's finance minister, Raymond Bachand, who was among the more ardent critics of the securities-regulator plan.
Flaherty expressed hope for a fruitful discussion.
"I think Quebec should be willing to talk because there's one part of the decision of the Supreme Court of Canada that talked about derivatives and seemed to indicate that derivatives might be a federal responsibility — which I know would concern Quebec because of the derivatives market in Montreal," he said.
"So there's a lot of room for discussion."
The head of the Investment Industry Association of Canada, Ian Russell, said Ottawa may still be able to achieve most of the original objectives.
He said that could happen if the minister can convince a sufficient number of provinces to "delegate" responsibility in the day-to-day oversight of trading, which the court said was in strict provincial and territorial purview, to a single regulator, in exchange for concessions.
"I think the minister is trying to get one single regulator responsible for the full oversight of capital markets ... but to do that the provinces have to work together with the federal government and the mechanism is a delegation of power." said Russell.
"I really do think most provinces see the value for Canada having one securities regulator. Not to have one voice and one regulator for Canada in an international world is really beyond the realm of reality."