Written By William S. Osler, James T. McClary, Usman M. Sheikh and James Bartlett
On September 19, 2013, the
finance ministers of Canada, Ontario and British Columbia announced an
agreement in principle to create a new securities regulator through a
"cooperative capital markets regulatory system".
The cooperative system
is open to all provinces and territories to join, and would be implemented by
participating jurisdictions enacting uniform securities legislation governing
matters within their jurisdiction and the federal government enacting
complementary national legislation. The regulator would be headquartered in
Toronto with regional offices in participating jurisdictions, and would operate
under authority delegated by the participating jurisdictions.
The
announcement marks the first concrete step towards a national securities
regime after the Supreme Court of Canada's 2011 ruling that the federal
government's proposed legislation to create a national securities regulator
was unconstitutional. The proposed cooperative system appears to reflect the
Supreme Court's suggestion in its 2011 ruling that national securities
regulation could be achieved though "cooperative federalism".
Purpose
The September 19 agreement states that the purpose of the
cooperative system is to:
- foster more efficient and globally
competitive capital markets in Canada and facilitate capital raising through
more integrated markets and national regulation;
- provide increased
protection for investors;
- strengthen Canada's capacity to manage
systemic risk; and
- enable Canada to play a more influential role in
international capital market regulatory initiatives.
Principal
Components
The principal components of the system include:
- uniform provincial and territorial legislation complemented by federal
legislation addressing criminal matters, systemic risk and national data
collection;
- a single capital markets regulator consisting of a
regulatory division and an adjudicative tribunal, led by an independent
board of directors that is representative of the regions of Canada;
- a council of ministers responsible for capital markets regulation in
each participating province and territory and including the federal Finance
Minister, which would oversee the regulator and be accountable to
participating governments;
- provincial offices with staff, expertise
and resources proportionate to market activity and enforcement demands in
each participating jurisdiction, each providing services similar to current
provincial regulators within a national framework;
- a voting
system that allows any major capital markets jurisdiction (defined as a
province that represents at least 10 percent of the national GDP derived
from financial services; currently, this would include Ontario, British
Columbia, Alberta and Quebec if all provinces participated) to object to
regulation proposed by the regulator, or to propose regulation or
amendments to provincial legislation, with the support of at least 50
percent of all members of the council of ministers;
- a fee structure
designed to allow the new regulator to be self-funded while not imposing
unnecessary or disproportionate costs on market participants; and
- transitional funding to those provinces and territories that would lose
net revenue as a result of the cooperative system.
Timetable
The announced goal is to have the regulator in place by
July 1, 2015. The proposed timetable is as follows:
- by January
2014, each participating jurisdiction signs a memorandum of agreement, to
which draft legislation will be attached;
- by March 2014, initial
draft regulations are published for comment;
- by May 2014, each
participating jurisdiction signs an agreement regarding the integration of
its securities regulatory body into the new regulator;
- by December
2014, legislation by each participating jurisdiction is enacted; and
- by July 1, 2015, the new regulator is operational.
Participation
Minister Flaherty stated that he expects other
provinces and territories to join the new system fairly quickly. However, it
is unclear which provinces and territories, other than Ontario and British
Columbia, will adopt the proposed system. While many of the key elements of
the proposal respond to certain issues raised by the provinces in
discussions with the federal government, it appears that the provinces
(other than Ontario and British Columbia) were not consulted. Alberta and
Quebec in particular have advocated against a national regulator and in
favour of the continued development of the current passport system, and
following the September 19 announcement, the Quebec government has indicated
that it may pursue court action against the initiative. Provinces with
smaller capital markets may have more incentive to adopt the cooperative
system.
Anticipating that certain provinces may not join the new
regulator, the September 19 agreement in principle states that the new
regulator will use its best efforts to negotiate and implement an interface
mechanism with each non-participating province such that the cooperative
system effectively has national application.