Photo: Halifax Examiner

A scan of the provincial government’s Budget Estimates suggests the claim of a balanced budget and $29 million surplus is dependent on two future events.

The first is $20 million collected from the tax on cannabis sales which has been delayed until late summer — has been dutifully noted. The second — a “one- time payment” of $77.1 million from Ottawa — is yet another windfall that has received scant public attention. Its purpose is to compensate the province for revenues it will no longer receive once the NS Securities Commission becomes part of a national regulatory system that is supposed to be established sometime in 2018, although no firm deadline has been set by provincial finance ministers.

The Halifax Examiner asked the Nova Scotia Finance Department for an explanation of the “one- time payment” in the revenue column.

“The province anticipates entering into an agreement with the federal government to implement the Cooperative Capital Markets Regulatory System (national securities regulator) in 2018–19,” replied spokesperson Brian Taylor by email. “If an agreement is finalized, it is expected the province will receive a one-time payment of $77.1 million.”

There are a couple of interesting things about this windfall. Progressive Conservative Finance critic Tim Houston points out the first.

“It’s a really significant number in this year’s budget, for sure,” says Houston. “We are looking at a surplus of $29 million and this one single line item represents $77 million. Without the decision to enter into the national scheme, if they had deferred this one more year, we would be looking at a big deficit. That’s clear.”

Discussions have gone on for the last decade about creating one regulatory body that would provide efficiencies for big companies trading on Canadian stock exchanges, replacing a patchwork of provincial rules with one set of rules applied consistently by offices that remain located in the provinces. (Taylor confirms there will be no job losses at the NS Securities Commission as a result of the transfer of authority.)

So, after declining to participate for several years, it looks now as if Nova Scotia is ready to join Canada, British Columbia, Saskatchewan, Ontario, Yukon, New Brunswick, and PEI in the Co-operative Capital Markets Regulatory System (a mouthful that could only have been dreamed up by a regulator).

Quebec and Alberta have refused to join; Newfoundland has yet to decide. After a constitutional challenge  by Quebec, the Supreme Court of Canada ruled in 2011 that provinces retain jurisdiction over stock markets and any pan-Canadian association must be voluntary.

It’s unclear why Nova Scotia is joining now. Taylor says the Finance Department will not answer any more questions until after a final decision has been made and an agreement signed. PC critic and leadership hopeful Tim Houston thinks the $77 million was “the sweetener.”

Whether it is adequate compensation is a question worthy of public discussion because what the provincial government will lose as a result of joining the new regulator is about $15 million dollars a year, on average. No wonder there’s been no news release.

After paying administration costs, that $15 million is the net revenue the Nova Scotia Securities Commission collects each year in registration fees from investment dealers and brokerages, from fines levied on companies and individuals who break the rules, and from hefty fees charged businesses and social enterprises that must file paperwork every time they raise money or change directors.

The $77 million booked as a one-time transfer from the federal government essentially makes up for about five years of revenue from the provincial Securities Commission. After legislation is passed to establish the new regulator, Nova Scotia no longer has that steady revenue stream.  It’s a significant sum of money the province will forgo.

Expected revenues from the NS Security Commission. Source: Budget Estimates, NS Finance Dept.

Despite the loss to provincial coffers, accountant and PC Finance critic Tim Houston supports the move to a single regulator. He says one-stop shopping will make life more efficient for companies such as Emera, Clearwater Fine Foods, and Killam Properties headquartered here. They will no longer have to fly to Toronto to file a prospectus each time they want to raise money or pay to file paperwork in every single province and territory where they do business.

The other reason the Federal government has been pushing to reach consensus on a national securities regulator is to improve public confidence in the stock market. In Nova Scotia, that’s taken quite a beating over the past decade with jail time and maximum fines handed out to several crooked investment dealers. Glenn Dunbar, John Alexander Allen, and Quintin Sponagle all swindled dozens of people out of their life savings. Allen was fined $1 million dollars and Sponagle $500,000. Dunbar got three years in jail but served less than six months.

The Co-operative Capital Markets Regulatory System will provide standard rules and enforcement procedures for publicly traded companies and investors. That’s not a bad thing when you consider the disrespect the NS Securities Commission brought on itself for mistakes made during its investigation of the Knowledge House insider trading scandal and subsequent censure from a Nova Scotia court for failing to disclose a secret agreement made between the National Bank and the Nova Scotia Securities Commission. It added seven years to a marathon lawsuit.

Nova Scotian investors lost an estimated $31 million in Knowledge House when it collapsed 17 years ago. The sentencing of the company’s former president Dan Potter and lawyer Blois Colpitts finally takes place next month, 17 years later in what has been the most complicated securities fraud case in the history of the province. Stockbroker Bruce Clarke has already served a three-year sentence for his role.

Former Maritime Life Assurance Co. president Bill Black has been appointed to chair the new national securities regulator. He says it main purpose it to offer better protection for the investor so that when a complaint comes in, the regulator gets the resources it needs to investigate.

“When a difficult or unusual situation arises in a province, the regulator will be able to call on the rest of the team for support and best practices to work out a solution,” says Black.

Let’s hope the new regulator offers much better service to both ordinary investors and publicly traded companies. If not, the Province will be giving up $15 million a year for little in return.

Jennifer Henderson is a freelance journalist and retired CBC News reporter.

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  1. This article seems predicated on the idea we should cling to every agency and revenue source we have, even if a better way of managing the issue at hand appears. This is the kind of thinking that kept the Apple Maggot Board operating, decades after it had outlived its usefulness.

    Philip Slayton is right. It’s long past time for Nova Scotia to stop regulating stocks on its own and join a national regulator. The fact we lose some revenue for doing so is more than compensated by the fact this task will now be carried out in a sounder, more efficient, and more trustworthy manner.

  2. “…the provincial government will lose as a result of joining the new regulator is about $15 million dollars a year, on average. “

    Why should the Liberals give a damn? Winning the next election is all that matters, right?

  3. Interesting. It’s worth stressing that a national securities regulator is long overdue. The existing system is ridiculous. It only benefits securities lawyers, particularly in Toronto (I should know – I was one).