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For investors, 13 different security regulators is 12 too many


It may be only a baby step, but Canada finally appears to be inching closer to addressing one of the mining industry's chief beefs about doing business in the country its fragmented approach to securities regulation.

Canadian Finance Minister James Flaherty in February appointed a panel of experts to advise him on how to create a common securities regulator. The 11-member panel, headed by a former Canadian Minister of International Trade, Thomas A. Hockin, will report back to Flaherty by the end of this year.

Streamlining the country's regulatory burden on companies is going to require a Herculean effort that only begins with the establishment of the panel. But after many years of bitter resentment over the complex layering of securities regulation in Canada, the government appears committed to taking action—if the ruling Conservative minority government, which lacks the majority of seats in Parliament to ensure electoral stability, stays in power long enough to see the efforts come to fruition.

As of right now, overseeing the securities business in Canada is a provincial responsibility, with no less than 13 different provincial and territorial regulators. This balkanized approach has scared away investors because of overlapping layers of paperwork and compliance costs. A recent study by the Canadian Bankers Association, for instance, found that companies seeking to raise less than $10 million had issuing costs increase by 7.5 percent for each additional jurisdiction in which funds were sought.

Canada is the only G-7 country without a common securities regulator, and the International Monetary Fund, the Bank of Canada and the Canadian Chamber of Commerce have all strongly suggested the country catch up with the rest of the modernized world.

Past efforts have been bogged down in jurisdictional disputes. The federal government and the province of Ontario are in favor of a single national regulator. But the provinces of Alberta, British Columbia and Quebec are reluctant to sign on, fearing that Ontario would be too dominant in running such a national regulator.

There has been some progress on streamlining regulations, but most executives—including many in the mining industry—agree that the efforts do not go far enough and a more fundamental restructuring is needed. Most provinces and territories have endorsed a "passport" system, whereby a company obtaining approval in one jurisdiction would be recognized in another. In mid-March, a rule went into effect allowing a company to clear a prospectus through its home regulator and have that approval apply automatically to all provinces and territories—except Ontario, which has refused to sign on to the passport system because it falls short of a national regulatory body. That's a big problem, given that the province accounts for 80 percent of securities transactions in Canada.

Efforts for a national securities regulator also have been hindered by separatists in Quebec, the country's only largely French-speaking province, which often identifies itself as a separate culture from the rest of Canada. Bloc Quebecois, an opposition party in the Canadian Parliament that advocates independence for Quebec, filed a motion earlier this year calling on the government to abandon the single-regulator concept. It worries that such nationalization of standards would diminish the province's rights in financial administration.

It all adds up to continued frustration for the mining and minerals industry, which is as key to the Canadian business landscape as banking is to the United States.

A poll conducted late last year by market research company Angus Reid Strategies found that 88 percent of surveyed members of the Prospectors and Developers Association of Canada wanted a single national securities regulator, with almost half of respondents expressing dissatisfaction with provincial securities commissions. Asked to choose between a continuation of the passport system (with Ontario as a participant) and a single national securities regulator, only 10 percent opted for the passport system.

Mineral exploration companies represent about 25 percent of publicly listed companies in Canada, and what happens in the country has ramifications far beyond its own borders. Worldwide, close to half of global equity financing of mineral exploration and mine development is being raised in Canada.

But the country's ranking internationally is coming under attack, facing stiff competition from Australia, South Africa, the United States and especially the United Kingdom, where the British government has implemented policies to attract and retain industry investment. It doesn't help that some of Canada's biggest names—Inco Ltd., Falconbridge Ltd. and Alcan Inc.—have been gobbled up by foreign titans in recent years.

As globalization of the securities and minerals industries becomes even more entrenched, companies need to react quickly and efficiently to business opportunities. Redundancy must be rooted out to remain competitive. The federal Conservative government has taken some significant steps in achieving this goal, and the provinces and territories must now act diligently to ensure it's not a squandered opportunity.

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