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The dream of a national securities regulator lives on

No doubt you’ve heard about the debate over a national securities regulator. Maybe you’ve even paid attention a bit. I believe there was a scuffle recently over a logo or something—and the location of the head office of the proposed regulator? Anyway, the Federal Government, via the recently created agency, the Canadian Securities Transition Office (CSTO), has prepared a Securities Act and handed it over to the Supreme Court to decide whether a national regulator is even legal according to the Constitution. That is, do the feds have the legal authority to establish a harmonized national regime to govern capital markets? In other words, it could be a long time yet before such a thing becomes a reality. (In a recent speech, Bryan Davies, the vice-chair of the CSTO spoke optimistically of July 2012—a brief 18 months away.)

What’s the big ol’ deal about regulating capital markets nationally rather than provincially? The proposed Securities Act itself notes that since:

Capital markets are increasingly national and international in scope [and] are rapidly evolving and include increasingly complex financial products and methods of distribution and trading, it is important for Canada to have competitive capital markets and a strengthened, comprehensive and coordinated enforcement regime for those markets; it is in the national interest to effectively protect and promote Canadian interests internationally, including through the development of consistent regulatory policies for capital markets [and] the integrity and stability of Canada’s financial system would be enhanced by the presence of a single Canadian securities regulator as part of the Canadian financial regulatory framework.

So it sounds pretty important. But besides the constitutionality of the regulator, there are other stumbling blocks. Not every province is hot on the idea of having a federal institution govern its capital markets. Some—namely Alberta, Manitoba and Quebec—think the current system is working fine and that they can better arrange and protect their markets on their own. No problem, says the federal government. The proposed regulatory regime is designed so that provinces and territories may opt in and gain the purported advantages, or opt out and continue to operate under their local arrangements.

There are also the small problems of where to locate the main offices of the national regulator, and what image will best represent it. But I have confidence that the creative minds at work in government will find acceptable solutions—if the scheme turns out to be constitutional and beneficial.

The Act aims to respect existing provincial regulatory structures, while making regulation “less burdensome and more effective” according to Davies. Perhaps Alberta, Manitoba and Quebec know something that the rest of us don’t? Or maybe they’re just not so keen to hand over greater control and oversight to the feds. Nevertheless, the rest of the country seems ready to make the bold jump into the exciting world of national securities regulation.

But what will such a thing mean for Canada’s businesses? The federal government says a national regulator will offer:

  • Better and more consistent protection for investors across Canada
  • Improved regulatory and criminal enforcement to better fight securities-related crime
  • New tools to better support the stability of the Canadian financial system
  • Faster policy responses to emerging market trends
  • Simpler processes for businesses, resulting in lower costs for investors
  • More effective international representation and influence for Canada

While the CSTO says that the proposed federal Securities Act will respect the spirit of current provincial securities law, organizations can expect significant regulatory changes if the Act becomes law.

One major change would be the introduction of the Canadian Securities Regulatory Authority to administer the new regime. The authority would consider the “interests of investors and businesses in all sectors and regions of the country and to balance the costs and benefits of regulation” in an “open, efficient, flexible and responsive” way. To do this, the authority would develop “standards for honest and responsible conduct by market participants; monitor developments affecting the integrity or stability of capital markets; and cooperate and coordinate with financial authorities within and outside of Canada.” So says law firm Stikeman Elliot.

It remains to be seen whether this will lead to big changes in the way that organizations operate. Finance and Accounting PolicyPro notes that:

In 2005, the Canadian Securities Administrators (CSA) published governance best practices for public companies in National Policy 58-201 – Effective Corporate Governance, and National Instrument 58-101 – Disclosure of Corporate Governance Policies. The policy provides guidance for public companies when developing corporate governance practices, and the instrument requires public companies to provide disclosure about their corporate governance practices. Most Canadian securities regulators have now adopted these new corporate governance best practice directives.

In other words, you’re probably already following the most up-to-date securities regulations. (Although, there has been talk recently of repealing and replacing even these recent CSA rules.) In any case, now might be a good time to take a second look and make sure your governance and disclosure policies and procedures align with the CSA’s expectations—and to consider whether your organization would do better under a national or provincial capital markets regulator.

See the federal Department of Finance’s fact sheet on the proposed Securities Act for more details.

Look for more information on the file come spring when the Supreme Court begins hearing the case for the constitutionality of a national regulator.

See the introduction to Chapter 1 of the corporate governance volume of Finance and Accounting PolicyPro for more information on securities regulation and disclosure.

Adam Gorley
First Reference Human Resources and Compliance Editor

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Adam Gorley

Editor at First Reference
Adam Gorley, B.A. (Phil.), is a researcher, content provider and editor. He contributes regularly to First Reference Talks and Internal Control blogs, HRinfodesk and other First Reference publications. His areas of focus include broad human resources issues, corporate social responsibility, corporate governance and government policies, information technology and labour market trends.Read more
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3 thoughts on “The dream of a national securities regulator lives on
  • Marc Ryan says:

    Nothing is proposed in the proposed federal securities act to address the most important challenge that investors face under the current system, excessive costs. And there is worrying language suggesting that Ottawa, which historically has regulated financial institutions, is moving into the field of securities regulation with a financial regulator’s mindset, namely that that protection of financial institutions takes precedence over investor protection.If this legislation ever takes effect, in my opinion investors will be hard pressed to see any meaningful increase in investor protection. For more, see my commentary Proposed Canadian Securities Act and investor protection: a failing grade at

  • Adam Gorley says:

    Thanks for the comment Jeffrey.

    I did read that Canada is one of few developed nations not to have a national securities regulator, and it is a bit incredible that 50 diverse US jurisdictions can agree on such a thing, but 13 Canadian regions can’t. I guess we can be a stubborn bunch!

    And thanks for the update on the possible changes to the securities policy and instrument. I guess if it’s an important enough change, it will happen, just like the creation of a national regulator. Maybe with our current unstable national politics, our bureaucrats are acting especially cagey.

  • Great comments, Adam. A couple of further thoughts.

    (1) Of all the members of the International Organisation of Securities Commissions only two lack a national or supranational regulator: Canada and Bosnia-Herzegovina. That’s pretty shocking.
    (2) You mention that there was discussion about replacing NP58-201 and NI 58-101. The proposed changes were excellent and would have significantly improved the requirements by making them principles-based instead of rule-based. Unfortunately the changes have been delayed permanently since businesses (and their lawyers) objected that they already had too many other changes to cope with, such as IFRS. Hopefully the changes will be resurrected at a future date.