At a time when Montreal's cachet as a financial center is waning, an important regulatory change down the road is likely to erode its status further and fuel Toronto's appeal.
On June 22, Canadian Finance Minister Jim Flaherty announced the creation of a new office with a mandate to help create a single, national securities regulator within roughly three years' time. The so-called transition office will have a year to come up with a plan for replacing the current system of 13 provincial and territorial regulators with a common regulator for markets across the country.
The shift, aimed at lowering the cost of capital for issuers and creating a more efficient market for investors, is also expected to create a larger business hub and bring more jobs to Toronto. That's where the securities regulator is expected to be based given Ontario's longstanding support of the changes and the fact that about 80 percent of Canada's securities transactions occur there already.
"Imagine all the legal offices, brokers, accountant firms and corporate head offices that will want to relocate the majority of their professional resources in Toronto," says Nathalie Francisci, executive vice president at recruiter Mandrake Groupe Conseil in Montreal. (The company also has offices in Toronto and Calgary.)
Montreal Is Already Losing Ground
Montreal has already lost some of its allure as a financial services hot spot. An April 2010 report by consulting firm Secor (which cites a study by the Z/Yen Group) says Montreal's position as an international financial center has been deteriorating since 2007:
Overall, Montréal ranked 32nd on the worldwide scale of financial centres in the Global Financial Centres Index (GFCI) published in September 2009.
Since March 2007, Montréal has fallen from 21st to 32nd place. Vancouver overtook Montréal in September 2008 and Toronto has remained in 13th place.
Canada is the only major developed economy that lacks a national regulatory body to oversee capital markets. Provincial authorities, particularly in French-speaking Quebec along with Alberta and Manitoba, have blocked attempts to alter the system for decades.
But in the aftermath of the global financial crisis, Ottawa believes it has a "a critical mass" of provinces and territories on board with the idea, according to Reuters.
Centralizing financial regulatory authority could inspire more multinationals to tap the Canadian markets for capital, says Craig Martin, executive programs director at the Association for Financial Professionals. In turn, Martin envisions more financial institutions launching Canadian subsidiaries, spurring job creation.