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Federal, Ontario and B.C. Governments Move Toward Cooperative Capital Markets Regulator

September-19-2013

Lawyer Kari MacKay, Neill May
Area Corporate Finance and Securities

Summary

The governments of Canada, Ontario and British Columbia have reached an agreement in principle to establish a cooperative capital markets regulatory system.  The joint announcement outlined the participating governments’ view that the new cooperative system would:

  • regulate Canadian capital markets in a manner that will foster more efficient and globally competitive capital markets,
  • provide increased protection for investors,
  • strengthen Canada’s capacity to identify and manage systemic risk, and
  • enable Canada, through the single voice of a new cooperative capital markets regulator, to play a more empowered and influential role in international capital market regulatory initiatives.

Background

Proposals to replace the current system of 13 different provincial and territorial securities regulators with an integrated single regulator have long been debated in Canada, which stands virtually alone among developed nations in not having a single national securities regulator.  In 2010, the federal government, a consistent supporter of a coordinated regulatory system, proposed a single national securities regulator and a unified and comprehensive Canadian Securities Act.  The proposed Act ultimately was ruled unconstitutional by the Supreme Court but the Court left open certain opportunities for a single regulator, particularly noting that a cooperative approach was available to Parliament and the provinces.

Cooperative System

The agreement in principle is carefully constructed to address the considerations from the Supreme Court decision, contemplating a cooperative system under which:

  • a single regulator would be appointed cooperatively by the participating jurisdictions (as opposed to a national (federal) securities regulator);
  • each participating jurisdiction would remain responsible for addressing matters within its constitutional jurisdiction, and neither surrender nor impair any of its jurisdiction;
  • instead of national legislation, each participating jurisdiction would adopt uniform legislation addressing those areas of securities regulation currently addressed by the provinces (with a complementary federal statute enacted to address criminal matters and matters of systemic risk); and
  • securities laws would be administered by the single cooperative capital markets regulator, which would be overseen by a Council of Ministers comprised of the Ministers responsible for capital markets regulation in each of the participating jurisdictions and the federal Minister of Finance.

Regional Roles and Responsibility

The agreement in principle provides that there would be a nationally integrated executive management team and regulatory offices located in every participating province, with an executive head office in Toronto.  The proposed structure would have the regulatory offices continuing to provide the range of services that the provincial commissions provide today with day-to-day decision-making power guided by the common interpretations and national standards.

The organization, design and culture of the new regulator would be guided by principles that include, among others, that regional and market sector perspectives should be weighed and considered in major policy and operational decisions by including regionally based staff in developing policy approaches and operating priorities and processes - a move that is intended to win at least some support in other jurisdictions.  The announcement also included a pledge by the federal government to provide transitional funding for provinces to compensate them for revenue lost from the fees charged by their securities regulators, to address provincial concerns about giving up a revenue source.

Next Steps

Under the agreement in principle legislation is to be published for comment by early next year.  The legislation is intended to be enacted by December 31, 2014.  The cooperative regulator is proposed to be operational by July 1, 2015.

The governments of British Columbia and Ontario are initially charged with bringing the agreement in principle to the other provinces and territories and, together with the federal Minister of Finance, will use their best efforts to secure their participation.  However, other jurisdictions (particularly Quebec and Alberta) have historically been adamantly opposed to the creation of a single regulator, so it remains to be seen what support the proposed cooperative system will get in those other jurisdictions.

For further information on this agreement, please contact any member of our Corporate Securities Group.