A national securities regulatory agency has been under consideration in Canada for at least 50 years. These efforts have been driven by a belief that a single regulatory agency would be more efficient and effective than 13 provincial bodies.
In spite of the recommendations of experts and numerous attempts to create a national securities regulator, the legal and political barriers have proven to be insurmountable. The latest attempt to create a new agency, the Cooperative Capital Markets Regulatory System (CCMR), began in 2013 and concluded in 2021 without success.
I believe, however, that Canada’s current national securities regulatory system has served us well. The solution could be to improve upon our current national regulatory system – rather than embark on another attempt to resolve the political barriers to a national commission.
Given the supposed importance of a single securities regulator, it is worth considering how Canadian capital markets have survived, and indeed thrived, under provincial jurisdiction since 1867. Though a national securities regulator does not exist, Canada does have a national securities regulatory system led by the Canadian Securities Administrators (CSA), which includes five components:
- Highly harmonized provincial securities laws and regulations. While provincial securities legislation has some differences, the National Instruments — the primary working-level regulatory tools — are highly harmonized.
- National filing systems. The CSA operates electronic filing systems, the most important of which are SEDAR for issuers, NRD for registrants and SEDI for company insiders. These systems provide a single portal for filing and payment of fees.
- National self-regulatory organizations (SROs). The Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) operate under provincial regulatory oversight in all provinces in Canada through legislation or agreement. For all practical purposes, dealer regulation in Canada is already national and will likely become more harmonized if proposals to consolidate IIROC and the MFDA into a single national SRO come to fruition.
- CSA Secretariat. The Secretariat, located in Montreal, offers meeting and project management services to all the CSA committees and projects. The Secretariat provides a level of transparency and accountability to all CSA committee and project work.
- The passport system. All the provincial governments, except Ontario, have implemented a passport system to ensure that issuers and registrants only deal with one decision maker when filing a prospectus, continuous disclosure, a registration application or exemption application. Unfortunately, issuers and registrants based outside Ontario with business in Ontario must still deal with two regulators. With the suspension of the CCMR, it is time for Ontario to join the CSA passport system.
While the distributed nature of rule-making authority has not always produced optimal results, it has produced some creative and cost-effective regulatory solutions uniquely suited for the Canadian capital markets. International standard setters, including the International Monetary Fund and the Organization for Economic Cooperation and Development, have given the Canadian system of financial regulation good evaluations.
In May 2013, at about the same time as the CCMR project was launched, the provinces that did not support the CCMR made a counter proposal to strengthen the CSA. This included the creation of a single national administrative tribunal to bring a national perspective to the resolution of allegations of misconduct, exemption applications, takeover bids and SRO discipline reviews. Additionally, a national fee model was proposed to standardize the fees paid by market participants and significantly reduce the regulatory burden of calculating and paying fees.
Here are two additional ideas to further improve our current system:
- Create a national enforcement agency. A national enforcement agency would investigate and prosecute all securities law and criminal law capital markets violations under provincial and federal law. The enforcement agency would be able to leverage criminal and administrative enforcement talent, operations, expertise, resources and leadership in a single organization.
- Build an independent, not-for-profit national filing systems operator. The CSA currently owns and operates critical technology systems. Running an information technology service provider is not a core CSA mandate. Furthermore, the CSA, as a voluntary association, is challenged to provide the project governance needed to reliably deliver complex, high-risk, high-cost technology projects.
Is the reason a national securities regulator has not replaced the CSA national regulatory system that Canada’s capital markets are already well regulated and regional markets in Canada are sufficiently distinct to justify local expertise and regulation? If this is the case, it makes sense to implement innovative and achievable improvements to the current system, rather than trying to replace it with a national agency that, so far, has been unable to achieve the support of all the provinces and territories.