Cablegate: Central Bank Governor Endorses a National

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





E.O. 12958: N/A


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
--------------------------------------------- -------

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

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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