This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 03 OTTAWA 003434 
 
SIPDIS 
 
SENSITIVE 
 
DEPARTMENT FOR EB/IFD, WHA/EPSC, L/PIL - BURMAN AND WHA/CAN 
STATE PASS FEDERAL RESERVE BANK FOR CHUGH 
STATE PASS SEC FOR JACOBS 
TREASURY FOR WILBUR MONROE AND DAVID NAGOSKI 
 
E.O. 12958: N/A 
TAGS: EFIN ECON CA
SUBJECT: CENTRAL BANK GOVERNOR ENDORSES A NATIONAL 
SECURITIES REGULATOR; OTHERS FOLLOW 
 
REF: A. TORONTO 2410 (OSC REJECTS PASSPORT SYSTEM) 
     ¶B. OTTAWA 1386 (NATIONAL REGULATOR) 
     ¶C. 03 OTTAWA 3718 (WISE PERSONS COMMITTEE ON 
        NATIONAL REGULATOR) 
 
¶1.  (U) Sensitive but unclassified.  For USG use only. 
 
¶2. (U)  Summary: In a December 9 speech, Bank of Canada 
Governor David Dodge characterized the provinces' proposed 
"passport" system of securities regulation (Ref A) as 
"unworkable."  While "declining to weigh in" on the debate 
over a national securities regulator, the Governor said that 
"efficiency does dictate that Canada should have uniform 
securities laws and regulations."  In post-speech remarks, 
Dodge also called for stronger steps to crack down on the 
perception that Canada's financial markets are a "Wild West," 
a sensationalist comment that could go far to build public 
support for reform. 
 
¶3. (U) Finance Minister Ralph Goodale, responding to 
questions on Dodge's remarks, said the federal government 
does not have infinite patience to wait for the provinces to 
establish a single securities regulator.  Dodge and Goodale 
have subsequently received support from parliament and the 
IMF.  The House Finance Committee has called for 
implementation of a national securities regulator by June 30, 
2005 and the IMF said that adopting a single national 
securities regulator "would reduce compliance and 
administrative costs," a statement that headlined reporting 
in a national newspaper.  These comments by top financial 
officials and the IMF signal a new focus on long-pending 
issues in the financial sector. (Dodge's comments on bank 
mergers are being reported septel.)  End summary. 
 
BOC Governor leads the offensive 
-------------------------------- 
 
¶4. (SBU)  Bank of Canada Governor David Dodge strayed from 
his prepared remarks on Financial System Efficiency to 
characterize the provinces' proposed passport system (ref A) 
as "unworkable."  While declining to weigh in on the debate 
over a national securities regulator, the Governor (returning 
to his text) said that "efficiency does dictate that Canada 
should have uniform securities laws and regulations."  Given 
the limited size, depth and liquidity of Canada's financial 
markets, he said, they must compensate with greater relative 
efficiency.  Our contacts in the financial sector welcome 
Dodge's voice in the debate and believe that he would be 
unlikely to address an issue as contentious as this (and one 
that is not strictly in his jurisdiction) without some 
coordination with the Department of Finance.  As Paul 
Martin's former deputy at the ministry of finance, Dodge is 
assumed to reflect the Prime Minister's views. 
 
Lawless Capital Markets? 
------------------------ 
 
¶5. (U) Press reports have seized on Dodge's post-speech 
statement that foreigners have a perception that Canada's 
capital markets are "a Wild West."  The head of the Canadian 
Securities Administration disputed the claim, saying Canada's 
securities regulation does not lag that in the U.S., but 
admitted that the perception that Canada isn't tough enough 
is "becoming a reality."  Working-levels at the federal 
Department of Finance also regret the phrase, saying it 
distracts from the real issue. 
 
¶6. (SBU)  Comment:  A colleague at ConGen Toronto with long 
experience of Canada's financial sector offers a somewhat 
Machiavellian interpretation, pointing out that Dodge, of 
course, does not consider Canada's capital markets to be 
lawless.  Buy tossing such headline-grabbing rhetoric into 
the public debate, the BOC Governor has put supporters of the 
status quo on the defensive and planted the seed in the 
public's mind that securities regulation might, in fact, need 
reform.  No one with whom we spoke believes Dodge would speak 
inadvertently on such a sensitive issue.  End comment. 
 
Feds More Active in Support of a National Securities 
Regulator? 
--------------------------------------------- ------- 
 
¶7. (SBU) Asked about Dodge's remarks on securities 
regulation, current Minister of Finance Ralph Goodale said 
December 9 that the federal government does not have infinite 
patience to wait for the provinces to establish a single 
securities regulator.  Although Goodale has made clear his 
longstanding support for a single securities regulator, the 
comment, made during a media scrum after Parliament's 
question period, was unexpected. (He was "not shooting from 
the hip, but not well-scripted," in the words of an official 
at Finance). 
¶8. (SBU) A Department of Finance official confirmed that 
Minister Goodale's remarks reflect the tenor of internal 
discussions.  The recent arrival of Deputy Minister Ian 
Bennett (from the IMF) and Senior Associate Deputy Minister 
Mark Carney (from Goldman Sachs via the Bank of Canada) has 
added new energy to the debate on how to move towards a 
single national securities regulator.  Both are reportedly 
"keenly interested" in moving the process forward. The 
minister's advisors have pointed out to him that although the 
business community must take primary responsibility for 
convincing provincial securities regulators of the need for a 
single regulator, he had not spoken on the subject since his 
March budget message and needed to be more engaged.  In their 
pre-budget consultations with interested parties in each 
province over the coming weeks, senior officials at Finance 
will be pushing for support for a single regulator.  Those 
involved with this issue over the decades feel that lack of 
progress by the end of this year (or the fiscal year and new 
budget in March) would once again derail the single regulator 
debate (ref B). 
 
Parliament is on board, sort of 
------------------------------- 
 
¶9. (U) The House of Commons Finance Committee's position 
paper in response to the GOC's pre-budget consultations, 
released December 20, strongly endorses adoption of a 
national securities regulator "no later than 30 June 2005." 
In a minority-party supplementary opinion, the opposition 
Conservative party seconded that view in the context of 
increasing productivity and streamlining regulations, 
criticizing the Liberals for lack of progress thus far.  In a 
dissenting opinion, the Bloc Quebecois reiterated that a 
Canadian securities commission would be "completely 
unacceptable to Quebec."  (Note:  Ref B describes the more 
nuanced view of Quebec's financial regulators.  End note.) 
The NDP stuck to fiscal concerns and did not refer to 
securities regulation. 
 
And the IMF joins in 
-------------------- 
 
¶10. (U) The IMF's Preliminary Conclusions on Canada's 2005 
Article IV Consultation, released December 20, highlights the 
desirability of single securities regulator in the context of 
further regulatory reform.  Noting that both "the banking and 
insurance sectors have posted a remarkable performance in 
recent years," it adds that improvements such as clarifying 
the framework for bank mergers (septel) and adopting a single 
national regulator, "as recommended by the Wise Persons 
Committee," (Ref C) would reduce compliance and 
administrative costs.  The report received prominent coverage 
in the business section of all the major papers, and adds to 
the base of support for progress on this decades-old issue. 
 
Ontario pleased but not optimistic 
---------------------------------- 
 
¶11. (SBU) An official at the Ontario Securities Commission 
(OSC) found Governor Dodge's comments positive, but doesn't 
believe the dynamic has changed.  The OSC also felt that 
Finance Minister Goodale's remarks in support of a national 
regulator would carry more weight if the Liberals had a 
majority in Parliament and could thus be counted on to carry 
through on initiatives.  (However, the Liberals and 
Conservatives together do have a healthy parliamentary 
majority.) 
 
¶12. (SBU) Ontario, the only province that did not endorse the 
MOU on the passport system for the 13 provincial and 
territorial regulators (Ref A), is calling for more definite 
commitment to move towards a national regulator.  However, on 
the theory that any improvement is helpful, the OSC is still 
committed to bringing about the planned August 1, 2005 
implementation of the passport system.  Ontario's Finance 
Minister remains very interested in engaging securities 
regulators in the other provinces to build momentum for a 
single regulator and hopes to announce an expert study group 
on the subject in February.  However, it is not clear that 
any of the other provinces are on board.  Ontario regulators 
see Alberta, fresh from provincial elections, as stable in 
the coming year but believe officials in British Columbia 
will be distracted by elections there in May.  Quebec's 
position is consistent, and officials there won't be engaging 
in the process. 
¶13. (SBU) A Canadian Bankers' Association expert who follows 
the issue closely considers Dodge's comments "a big step, not 
your typical Central Bank Governor's statement."  He said 
Dodge is "deliberately pushing the envelope." He interprets 
Goodale's comments as prodding the provincial regulators, 
showing that the Federal government is willing to play a more 
active role in the debate.  Members of Toronto's financial 
sector told us last spring that if there was not progress on 
the proposals in the Wise Persons Committee report by the end 
of this year, the issue would lose momentum and fade away. 
It will still be a slow and difficult process, but the recent 
flurry of activity does support the Ontario Securities 
Commission's lonely push for a single regulator and the 
private sector's efforts with provincial regulators. 
 
¶14. (U) ConGen Toronto contributed to this report. 
 
 
 
 
 
 
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