Canadian securities regulation
Encyclopedia
Canadian securities
regulation is managed through laws and agencies established by Canada's 13 provincial and territorial governments. Each province and territory has a securities commission or equivalent authority and its own piece of provincial or territorial legislation.
Unlike any other major federation, Canada does not have a securities regulatory authority at the federal government level. Provincial governments began to establish regulatory agencies in 1912 (in Manitoba), and the Privy Council decided in Lymburn and Mayland, [1932] A.C. 318 that such legislation is authorized under the provincial property and civil rights power.
Notwithstanding the lack of a federal regulator, the majority of provincial security commissions operate under a passport system, so that the approval of one commission essentially allows for registration in another province. However, concerns with the system remain. For example, Ontario, Canada’s largest capital market, does not participate in the Passport regime.
Concerns with the provincial system of securities regulation has led to repeated calls for a national securities system in Canada. Currently, the Government of Canada is working towards establishing a national securities regulatory system that will provide:
) and the MFDA (Mutual Fund Dealers Association
). Accountability for securities regulation extends from the securities regulator to the Minister responsible for securities regulation and, ultimately, the legislature, in each province.
The largest of the provincial regulators is the Ontario Securities Commission
. Other significant provincial regulators are the British Columbia Securities Commission
, the Alberta Securities Commission, and the Autorité des marchés financiers (Québec)
.
The provincial and territorial regulators work together to coordinate and harmonize regulation of the Canadian capital markets through the Canadian Securities Administrators
(CSA). The major provincial securities regulators also participate in various international co-operative organizations and arrangements.
The CSA has focused its efforts on:
The most important CSA effort is the implementation of the passport system. Under the passport system, compliance with the rules and decisions of the principal regulator is intended to constitute deemed compliance with the requirements of all other participating jurisdictions, in essence providing a passport to undertake capital markets activity across Canada. The passport system covers regulatory areas such as prospectus filings, registration requirements and certain types of discretionary exemptions. Ontario supports the harmonization and improved coordination of securities regulation in Canada; however, it does not wish to participate in the passport system.
Public education on financial literacy, investment and financial decision making is a secondary focus of the provincial regulators. The Ontario Securities Commission (OSC) set up the non-profit organization Investor Education Fund (IEF) for this sole purpose. Funded by the OSC but acting independently, IEF’s primary goal is to provide Canadians with financial tools and information to improve financial literacy.
First, the Panel was concerned that the fragmented structure, requiring decisions to be coordinated across up to 13 jurisdictions, makes it difficult for Canadian securities regulators to react quickly and decisively to capital market events. One illustration of this difficulty was the adoption in September 2008 by some of Canada’s international counterparts, including the United States and United Kingdom, of restrictions of short-selling of certain stock as a temporary stability measure. The Canadian response lagged behind the coordinated efforts of the United States and the United Kingdom, and was not uniform across the provinces. A second illustration was the delay between the freezing of the non-bank Asset Backed Commercial Paper (ABCP) market in August 2007 and the release of a consultation paper by the Canadian Securities Administrators to seek input on a number of proposals that aim to prevent similar capital market failures in the future. The Panel found that the fragmented Canadian securities regulatory structure is prone to foster slow securities regulatory responses, which makes Canada vulnerable to market and reputational risks.
Second, the Panel expressed concern that the Canadian system of provincial mandates is incongruent with the national response required to address developments in capital markets that are increasingly national and international in scope. They found that one of the important lessons from the recent capital markets crisis throughout 2008-2009 is that systemic risk is increasingly presenting itself in capital markets rather than being solely confined to banking institutions. The Panel reported that effectively addressing systemic risk requires the coordination and collaboration of all financial sector regulators in Canada. It also requires working effectively with international counterparts. The Panel did not believe that the multiple provincial and territorial securities regulators are able to work effectively as part of a national systemic risk management team, as structural challenges will likely compromise its ability to be proactive, collaborative, and generally effective in helping to address larger capital market issues on a timely basis. A delayed response, which is poorly managed by any one of the securities regulators, could have a detrimental impact on the integrity of Canada’s capital markets as a whole.
Finally, the Panel reported that the current structure fundamentally misallocates resources, causing securities regulation to be less efficient and effective. Resources must be devoted to keep 13 separate securities regulators operating in Canada. This is inefficient since each jurisdiction dedicates a different level of resources to securities regulation, which causes the intensity of policy development, supervision, and enforcement activities to vary across Canada. In addition, most efforts are duplicative, which results in unnecessary costs, overstaffing, and delays. Canadians, in turn, are afforded different levels of investor protection depending on the jurisdiction in which they reside or invest. Second, market participants will continue to be burdened with undue compliance costs, even with the full implementation of the passport system. Market participants will still have to pay fees in up to 13 jurisdictions. They will still have to deal with the general inefficiencies associated with differences between provincial statutes and regulations, the ongoing use of local rules, and variations in the interpretation of national rules.
In the most recent final report of the Expert Panel, the Panel made a series of recommendations, the most important being the establishment of a Canadian securities regulator to administer a single securities act for Canada. The Expert Panel provided a recommended transition path to bring this about, with one key step being the creation of a transition and planning team to oversee the transition to a federal regulatory system.
On June 22, 2009, the Government of Canada acted on this recommendation and announced the launch of the Canadian Securities Transition Office to lead Canada’s effort to establish a Canadian securities regulator. The Transition Office is mandated to lead all aspects of the transition, including the development of the proposed federal securities act and the accompanying regulations, collaborating with provinces and territories, and developing and implementing a transition plan for organizational and administrative matters.
Mr. Doug Hyndman is the Chair and Chief Executive Officer of the Transition Office, and Mr. Bryan Davies is the Vice-Chair. Mr. Hyndman had been Chair of the British Columbia Securities Commission since 1987. Mr. Davies has been Chair of the Canada Deposit Insurance Corporation since 2006 and continues in this part-time role. Mr. Davies was previously the Chief Executive Officer and Superintendent of the Financial Services Commission of Ontario.
All Canadian jurisdictions have been invited and encouraged to join in the Government of Canada’s effort, which will build on the existing infrastructure and expertise of the provincial and territorial securities regulators. On October 15, 2009, the Government of Canada announced the appointment of an Advisory Committee of ten Participating Provinces and Territories to the Transition Office with representatives from Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Ontario, Saskatchewan, British Columbia, Yukon, Northwest Territories and Nunavut. The Advisory Committee provides advice to the Transition Office on the transition to a Canadian securities regulator to ensure that each of the participating governments’ interests are represented in the work of establishing a Canadian securities regulator.
To date, the Transition Office and the Government of Canada have completed two key steps in the transition to a Canadian securities regulator: on May 26, 2010, the Government of Canada tabled for information in the House of Commons the proposed Canadian securities act. The proposed Act was built on provincial securities regulation and harmonizes existing legislation in the form of a single statute. It benefits from the work of the Expert Panel on Securities Regulation and other reform efforts, and reflects domestic and international best practices. It proposes significant improvements in terms of governance, adjudication, financial stability, and regulatory and criminal enforcement, and provides a wide scope of authority to regulate financial instruments and participants in capital markets.
On July 12, 2010, the Transition Office delivered its Transition Plan for the Canadian Securities Regulatory Authority to the Minister of Finance and the ministers responsible for securities regulation of the participating provinces and territories.
Concurrent with releasing the proposed Canadian Securities Act, the Government of Canada referred the proposed Act to the Supreme Court of Canada for its opinion on the following question: Is the annexed proposed Canadian Securities Act within the legislative authority of the Parliament of Canada? An opinion from the Supreme Court of Canada will provide legal certainty
to all provinces and territories, and market participants, and thus protect the integrity of a Canadian securities regulatory regime. Should a favourable ruling be received from the Supreme Court of Canada, the Government of Canada has indicated it intends to introduce for adoption in Parliament a Securities Act, which would then go through the normal parliamentary legislative process. The Supreme Court is scheduled to hear the reference on April 13 and 14, 2011.
Financial regulatory authorities of Canada
Security (finance)
A security is generally a fungible, negotiable financial instrument representing financial value. Securities are broadly categorized into:* debt securities ,* equity securities, e.g., common stocks; and,...
regulation is managed through laws and agencies established by Canada's 13 provincial and territorial governments. Each province and territory has a securities commission or equivalent authority and its own piece of provincial or territorial legislation.
Unlike any other major federation, Canada does not have a securities regulatory authority at the federal government level. Provincial governments began to establish regulatory agencies in 1912 (in Manitoba), and the Privy Council decided in Lymburn and Mayland, [1932] A.C. 318 that such legislation is authorized under the provincial property and civil rights power.
Notwithstanding the lack of a federal regulator, the majority of provincial security commissions operate under a passport system, so that the approval of one commission essentially allows for registration in another province. However, concerns with the system remain. For example, Ontario, Canada’s largest capital market, does not participate in the Passport regime.
Concerns with the provincial system of securities regulation has led to repeated calls for a national securities system in Canada. Currently, the Government of Canada is working towards establishing a national securities regulatory system that will provide:
- 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; and
- more effective international representation and influence for Canada.
Current Structure of the Canadian Securities Regulatory System
Each province has its own securities regulator, which is either a self-funded commission or an entity funded within a larger government department. The securities regulator administers the province’s securities act and, correspondingly, promulgates its own set of rules and regulations. The securities regulator delegates certain regulatory responsibilities to national self-regulatory organizations, such as the IIROC (Investment Industry Regulatory Organization of CanadaInvestment Industry Regulatory Organization of Canada
The Investment Industry Regulatory Organization of Canada, abbreviated IIROC in English or Organisme canadien de réglementation du commerce des valeurs mobilières in French, is a non-profit, national self-regulatory organization...
) and the MFDA (Mutual Fund Dealers Association
Mutual Fund Dealers Association
The Mutual Fund Dealers Association of Canada regulates securities dealers that are registered in Canadian provinces other than Quebec to sell mutual funds and similar products. It is recognized as a self-regulatory organization under the securities legislation of several Canadian provinces....
). Accountability for securities regulation extends from the securities regulator to the Minister responsible for securities regulation and, ultimately, the legislature, in each province.
The largest of the provincial regulators is the Ontario Securities Commission
Ontario Securities Commission
The Ontario Securities Commission is a regulatory agency which administers and enforces securities legislation in the Canadian province of Ontario...
. Other significant provincial regulators are the British Columbia Securities Commission
British Columbia Securities Commission
The British Columbia Securities Commission is a regulatory agency which administers and enforces securities legislation in the Canadian province of British Columbia.-See also:* Canadian securities regulation* Securities Commission...
, the Alberta Securities Commission, and the Autorité des marchés financiers (Québec)
Autorité des marchés financiers (Québec)
The Autorité des marchés financiers is the body mandated by the government of Québec to regulate the province's financial markets and provide assistance to consumers of financial products and services....
.
The provincial and territorial regulators work together to coordinate and harmonize regulation of the Canadian capital markets through the Canadian Securities Administrators
Canadian Securities Administrators
The Canadian Securities Administrators is an association of provincial and territorial securities regulators in Canada.-List of securities regulators:* BC: British Columbia Securities Commission*: jointly regulates the TSX Venture Exchange...
(CSA). The major provincial securities regulators also participate in various international co-operative organizations and arrangements.
The CSA has focused its efforts on:
- developing uniform rules and guidelines for securities market participants;
- coordinating approval processes;
- developing national electronic systems through which regulatory filings can be made with and processed by all jurisdictions; and
- coordinating compliance and enforcement activities.
The most important CSA effort is the implementation of the passport system. Under the passport system, compliance with the rules and decisions of the principal regulator is intended to constitute deemed compliance with the requirements of all other participating jurisdictions, in essence providing a passport to undertake capital markets activity across Canada. The passport system covers regulatory areas such as prospectus filings, registration requirements and certain types of discretionary exemptions. Ontario supports the harmonization and improved coordination of securities regulation in Canada; however, it does not wish to participate in the passport system.
Public education on financial literacy, investment and financial decision making is a secondary focus of the provincial regulators. The Ontario Securities Commission (OSC) set up the non-profit organization Investor Education Fund (IEF) for this sole purpose. Funded by the OSC but acting independently, IEF’s primary goal is to provide Canadians with financial tools and information to improve financial literacy.
Concerns with the Current Structure
On February 21, 2008, the Government of Canada appointed an Expert Panel on Securities Regulation to provide advice and recommendations on securities regulation in Canada. On January 12, 2009, the Expert Panel on Securities Regulation released its final report, in which they highlighted several concerns with the current structure.First, the Panel was concerned that the fragmented structure, requiring decisions to be coordinated across up to 13 jurisdictions, makes it difficult for Canadian securities regulators to react quickly and decisively to capital market events. One illustration of this difficulty was the adoption in September 2008 by some of Canada’s international counterparts, including the United States and United Kingdom, of restrictions of short-selling of certain stock as a temporary stability measure. The Canadian response lagged behind the coordinated efforts of the United States and the United Kingdom, and was not uniform across the provinces. A second illustration was the delay between the freezing of the non-bank Asset Backed Commercial Paper (ABCP) market in August 2007 and the release of a consultation paper by the Canadian Securities Administrators to seek input on a number of proposals that aim to prevent similar capital market failures in the future. The Panel found that the fragmented Canadian securities regulatory structure is prone to foster slow securities regulatory responses, which makes Canada vulnerable to market and reputational risks.
Second, the Panel expressed concern that the Canadian system of provincial mandates is incongruent with the national response required to address developments in capital markets that are increasingly national and international in scope. They found that one of the important lessons from the recent capital markets crisis throughout 2008-2009 is that systemic risk is increasingly presenting itself in capital markets rather than being solely confined to banking institutions. The Panel reported that effectively addressing systemic risk requires the coordination and collaboration of all financial sector regulators in Canada. It also requires working effectively with international counterparts. The Panel did not believe that the multiple provincial and territorial securities regulators are able to work effectively as part of a national systemic risk management team, as structural challenges will likely compromise its ability to be proactive, collaborative, and generally effective in helping to address larger capital market issues on a timely basis. A delayed response, which is poorly managed by any one of the securities regulators, could have a detrimental impact on the integrity of Canada’s capital markets as a whole.
Finally, the Panel reported that the current structure fundamentally misallocates resources, causing securities regulation to be less efficient and effective. Resources must be devoted to keep 13 separate securities regulators operating in Canada. This is inefficient since each jurisdiction dedicates a different level of resources to securities regulation, which causes the intensity of policy development, supervision, and enforcement activities to vary across Canada. In addition, most efforts are duplicative, which results in unnecessary costs, overstaffing, and delays. Canadians, in turn, are afforded different levels of investor protection depending on the jurisdiction in which they reside or invest. Second, market participants will continue to be burdened with undue compliance costs, even with the full implementation of the passport system. Market participants will still have to pay fees in up to 13 jurisdictions. They will still have to deal with the general inefficiencies associated with differences between provincial statutes and regulations, the ongoing use of local rules, and variations in the interpretation of national rules.
Efforts to establish a single Canadian securities regulator
Over the past 45 years, the vast majority of studies by independent expert and academic analysts have come out in favour of establishing a Canadian securities regulator, beginning with the Porter Report in 1964 and the Kimber Report in 1965. In the most recent decade, the push for a national regulator has been particularly strong, with reports delivered from the Wise Persons Committee, the Crawford Panel and the Expert Panel on Securities Regulation.In the most recent final report of the Expert Panel, the Panel made a series of recommendations, the most important being the establishment of a Canadian securities regulator to administer a single securities act for Canada. The Expert Panel provided a recommended transition path to bring this about, with one key step being the creation of a transition and planning team to oversee the transition to a federal regulatory system.
On June 22, 2009, the Government of Canada acted on this recommendation and announced the launch of the Canadian Securities Transition Office to lead Canada’s effort to establish a Canadian securities regulator. The Transition Office is mandated to lead all aspects of the transition, including the development of the proposed federal securities act and the accompanying regulations, collaborating with provinces and territories, and developing and implementing a transition plan for organizational and administrative matters.
Mr. Doug Hyndman is the Chair and Chief Executive Officer of the Transition Office, and Mr. Bryan Davies is the Vice-Chair. Mr. Hyndman had been Chair of the British Columbia Securities Commission since 1987. Mr. Davies has been Chair of the Canada Deposit Insurance Corporation since 2006 and continues in this part-time role. Mr. Davies was previously the Chief Executive Officer and Superintendent of the Financial Services Commission of Ontario.
All Canadian jurisdictions have been invited and encouraged to join in the Government of Canada’s effort, which will build on the existing infrastructure and expertise of the provincial and territorial securities regulators. On October 15, 2009, the Government of Canada announced the appointment of an Advisory Committee of ten Participating Provinces and Territories to the Transition Office with representatives from Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Ontario, Saskatchewan, British Columbia, Yukon, Northwest Territories and Nunavut. The Advisory Committee provides advice to the Transition Office on the transition to a Canadian securities regulator to ensure that each of the participating governments’ interests are represented in the work of establishing a Canadian securities regulator.
To date, the Transition Office and the Government of Canada have completed two key steps in the transition to a Canadian securities regulator: on May 26, 2010, the Government of Canada tabled for information in the House of Commons the proposed Canadian securities act. The proposed Act was built on provincial securities regulation and harmonizes existing legislation in the form of a single statute. It benefits from the work of the Expert Panel on Securities Regulation and other reform efforts, and reflects domestic and international best practices. It proposes significant improvements in terms of governance, adjudication, financial stability, and regulatory and criminal enforcement, and provides a wide scope of authority to regulate financial instruments and participants in capital markets.
On July 12, 2010, the Transition Office delivered its Transition Plan for the Canadian Securities Regulatory Authority to the Minister of Finance and the ministers responsible for securities regulation of the participating provinces and territories.
Concurrent with releasing the proposed Canadian Securities Act, the Government of Canada referred the proposed Act to the Supreme Court of Canada for its opinion on the following question: Is the annexed proposed Canadian Securities Act within the legislative authority of the Parliament of Canada? An opinion from the Supreme Court of Canada will provide legal certainty
Legal certainty
Legal certainty is a principle in national and international law which holds that the law must provide those subject to it with the ability to regulate their conduct. Legal certainty is internationally recognised as a central requirement for the rule of law....
to all provinces and territories, and market participants, and thus protect the integrity of a Canadian securities regulatory regime. Should a favourable ruling be received from the Supreme Court of Canada, the Government of Canada has indicated it intends to introduce for adoption in Parliament a Securities Act, which would then go through the normal parliamentary legislative process. The Supreme Court is scheduled to hear the reference on April 13 and 14, 2011.
See also
- Canadian Securities AdministratorsCanadian Securities AdministratorsThe Canadian Securities Administrators is an association of provincial and territorial securities regulators in Canada.-List of securities regulators:* BC: British Columbia Securities Commission*: jointly regulates the TSX Venture Exchange...
- Financial regulationFinancial regulationFinancial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system...
Financial regulatory authorities of Canada
- Securities CommissionSecurities CommissionSecurities Commission a statutory body entrusted with the responsibility of regulating and systematically developing the capital markets in Malaysia.-History:...