A New National Securities Regulator: Cooperation or Coup?

Note: The rules and law may have changed since this article was first published. It is provided for archival purposes but you should consult with your lawyer for the current state of the law

Unlike most other industrial nations involved in the global capital markets, Canada does not have a national securities regulator. Instead, regulation falls under provincial jurisdiction. Each province and territory of Canada has its own securities commission and its own set of rules and regulations. On top of this provincial patchwork lie certain national instruments which have been developed by the Canadian Securities Administrators and agreed to by all provinces and territories. While these instruments are the result of significant cooperation between provinces, they govern only certain areas and matters.

There have been calls for the creation of a national Canadian securities regulator for some time, but these calls have escalated in recent years. The impetus behind the desire for a national regulator goes beyond creating consistency and alleviating the often confusing, inefficient and cumbersome mishmash of federal and provincial rules and regulations and extends to investor protection and Canada’s role in the international markets.

Supporters insist that a national regulator will allow for better ability to track fraudsters and enforce compliance with regulations. While most, if not all, provinces disclose their enforcement decisions and orders, a national securities regulator would be better able to enforce orders on a national scale and crack down on offenders. This “watchdog” capacity could serve to increase investor protection.

In addition, proponents maintain that a national system would be better able to respond to market trends. Currently, thirteen provinces and territories must determine how to react to an emerging trend, causing slow and often fragmented responses. A national regulator would be able to respond quicker and provide a unified voice. An ability to react decisively and cohesively could have a positive impact on Canada’s international reputation. A national regulator may also attract more investment by removing the burden of dealing with several different small centres across Canada.

The federal government previously attempted to unilaterally create a national regulator, but the Supreme Court of Canada’s ruled in December 2011 that such a move would be unconstitutional. The Court did, however, suggest that a regulator could be formed with the cooperation of the provinces. The Feds decided to do just that – since they had no jurisdiction to do it alone, they have sought provincial collaboration.

In September 2013, federal Finance Minister Jim Flaherty announced that the governments of Canada, Ontario and British Columbia have signed onto an “Agreement in Principal to Move Towards a Cooperative Capital Markets Regulatory System”. While three parties does not a national system make, these three parties are big players in the Canadian securities markets and their hope is that other provinces will follow.

Not surprisingly, some provinces staunchly oppose the trend towards national regulation. Quebec and Alberta have been vocal in their resistance in the past, and both challenged the federal government’s previous attempt at centralizing securities regulation. Quebec has already stated that it will fight the proposed cooperative system.

Most of the opposition is based upon provincial fears that the national system will cause them to lose control over their unique economic and financial interests and the fear that a national regulatory authority will steal jobs away from provinces. In addition, provinces have misgivings about their ability to provide input into policy development and some assert that there is enough cooperation in the current system.

The proposed national regulatory system would require that the participating provinces amend their provincial securities legislation to reflect the uniform rules and regulations but it would not grant the federal government jurisdiction over capital markets. The national regulatory authority would be responsible for administering both federal and provincial securities legislation. Since the provinces would not be ceding power to the federal government, the hope is that the situation disallowed by the Supreme Court is avoided.

Although a board of directors, regulatory office and tribunal will be established, the system will be overseen by a council of ministers including the Minister of Finance and a representative from each participating jurisdiction. In addition, while the head office of the established cooperative regulatory authority would be located in Toronto, a local office will also be maintained in each participant province.

While it is in the federalist blood of many Canadians to oppose centralization of power, the proposed cooperative system does not seek to strip all power over securities regulation from the provinces. It is instead aimed at bolstering the cooperation that is already present, increasing investor protection, creating efficiencies and ease of enforcement and providing Canada with a much needed unified voice in the global capital markets.

It remains to be seen when and if additional provinces and territories, including Saskatchewan, sign on to the proposed system. Saskatchewan is generally a proponent of initiatives aimed at simplifying securities regulation, so long as items important to its capital markets are safeguarded. The Ontario, BC and federal governments are optimistic that legislation enacting the Cooperative Capital Markets Regulatory System can be in place by 2015.