The concept of a national securities regulator has been around for decades. I recall writing several articles about it in the Financial Times of Canada in the mid-1970s. Today there is in fact much uniformity in regulation nationally through the self-regulatory bodies such as the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA).
Furthermore, the Canadian Securities Administrators made up of representatives of the 10 provinces and three territories have over the years introduced a number of national instruments covering such areas as dealer and advisor registrations, as well as exemptions and prospectuses.
There are still some segments of investing that can be described as "wild west." The exempt issue market comes to mind, with different provinces setting regional standards, and I've written on this a number of times. Nevertheless, IIROC and MFDA dealers have specific rules that must be followed before its representatives can sell a specific exempt issue.
The latest manifestations toward a national securities regulator are the Cooperative Capital Markets Regulatory System , the proposed Provincial Capital Markets Act and the proposed federal Capital Markets Stability Act .
Every individual involved in the investment business should read the consultation draft documents thoroughly as well as any of the commentaries that law firms have published and will continue to publish. The proposed legislation is a game changer and will raise the cost of compliance -- or conversely, non-compliance. Moreover it provides for a range of penalties up to $25 million in fines for companies and imprisonment for up to 14 years depending on the violation. The maximum penalties dwarf the current maximums noted in the securities acts of the provinces that have subscribed to the new regime.
Backing the concept are British Columbia, New Brunswick, Ontario, Prince Edward Island, Saskatchewan and the federal government. The Cooperative Capital Markets Regulatory System's website says this initiative "will better protect investors, enhance Canada's financial services sector, support efficient capital markets and strengthen the management of systemic risk."
Maybe that will be the case, but it is a certainty that many industry stakeholders and others concerned about the delegation of power to bureaucrats and tribunals as well as the potential punishments will have a lot to say on the proposals. Also, two key provinces -- Alberta and Quebec -- aren't backing the initiatives, so assuming the proposals go through we still won't have a truly national system.
The draft regulations that will replace the provincial regulations of the provinces involved are scheduled for release on Dec. 19, 2014 for comment. The parties pushing for the new regime expect the Provincial Capital Markets Act and the federal Capital Markets Stability Act will be implemented by the end of next June.
Under the new regime, the federal government will be responsible for addressing systemic risk, which the proposed act defines as "a threat to the stability or integrity of Canada's financial system that originates in, is transmitted through or impairs capital markets and that has the potential to have an adverse effect on the Canadian economy." A key purpose is "to protect capital markets against the commission of financial crimes."
Securities industry participants who are familiar with the various provincial securities acts will find the draft Capital Markets Stability Act somewhat chilling in the powers given under it.
A case in point is the topic of "entry." The document states to the effect that a designated person may enter a systemically important clearing house, credit rating organization, capital markets intermediary or a trade repository "that they have reasonable grounds to believe contains any thing that is relevant to the review and… examine any thing in the place."
A cynic might quip that a provincial fishing permit would be in order for going into a business and fishing for "any thing in the place." From my perspective, I prefer the need for a regulatory official to convince a judge there are probable grounds to grant authorization to search a place of business, as is provided for in the current Ontario Securities Act. Also, nowhere in the proposed act could I find the word "appeal."
And anyone concerned about privacy might find the following statement pertaining to disclosure of personal information disconcerting: "A trading facility, a clearing house, a credit rating organization, a capital markets intermediary, a trade repository, a self-regulatory organization, a financial regulatory authority, a governmental or regulatory authority or any other person may disclose personal information to the Authority if the disclosure is for the purpose of the administration of this Act or of assisting in the administration of capital markets or financial legislation in Canada or elsewhere."
