From ancient quandaries, such as how to create a national regulator, to novel concerns, like crowdfunding and high-frequency trading, securities regulators grappled with a wide variety of challenges, both old and new, over the past year.

The regulatory realm took a historic step this past year when five provinces and the federal government agreed to move ahead to create a new cooperative capital markets regulator. By first adding Saskatchewan and New Brunswick, and later PEI, to a deal that initially only involved B.C. and Ontario, the effort to create a new common regulator gained some much-needed momentum in 2014.

In addition to the deal that now includes half the provinces and the feds, policymakers also managed to publish draft federal and provincial legislation that would empower the new authority and serve as its legal framework.

Plans to publish draft rules before the end of the year failed, however. The proposed legislation also sparked its share of concerns in the industry. So, while there was seemingly great movement toward a common regulator during the year, some of the monumental obstacles facing the effort were also revealed.

IIAC voices concerns about cooperative regulator

Other long-running regulatory initiatives enjoyed more concrete progress in 2014. The first wave of requirements designed to dramatically boost transparency to investors — the client relationship model, phase 2 (CRM2) — took effect in mid-July. Regulators continue to finalize the details of provisions that are slated to take effect in mid-2015 and mid-2016. The Mutual Fund Dealers Association of Canada finalized its version of the remaining CRM2 reforms by the end of the year; and, the Investment Industry Regulatory Organization of Canada published the latest version of its proposals for yet another round of comments in the fall.

CSA approves MFDA CRM2 amendments

As the year came to a close, the industry continued to call on the Canadian Securities Administrators (CSA) to extend the forthcoming CRM2 implementation deadlines a bit to provide a little more time for the industry to get its systems in shape for new cost and portfolio performance reporting requirements. In the meantime, dealers are working towards implementation in line with whatever deadlines the CSA settles on for the final requirements — an exercise that has created a cottage industry of its own in readying firms for compliance.

IIAC steps up lobbying to delay CRM2

Even as the industry works toward adopting the full slate of CRM2 requirements, regulators continue to consider whether more dramatic reforms are required to enhance investor protection. In 2014, the regulators carried out their first-ever “mystery shopping” exercise in order to get more insight into the retail investor experience. They also commissioned some original academic research into mutual fund trailer commissions, and their impact on both fund sales, and investor outcomes — which should help them decide whether they need to take steps beyond the transparency-enhancing measures of CRM2 to ensure investors are adequately protected.

The launch of mystery shopping and trailer fee research wasn’t the only first for regulators in 2014. They also proposed new rules to deal with the emerging phenomenon of equity crowdfunding as a way for fledgling startups to raise capital. The various provincial regulators took different approaches to regulating crowdfunding in their initial proposals, which have yet to be finalized. At the same time, regulators also took other steps toward expanding the use of the exempt market by proposing a variety of new prospectus exemptions.

The Ontario Securities Commission (OSC) also broke new ground in a couple of areas during the year. On the enforcement side, it pioneered the use of no-contest settlements in Canada: they have already been used to quickly resolve a couple of high-profile enforcement cases. It’s not yet clear whether other regulators may adopt this approach.

The benefits of no-contest settlements

Meanwhile, on the policy side, the OSC spearheaded a move to encourage greater diversity among the senior ranks of Canada’s public companies. It proposed rule changes to require public companies to provide more information about their policies and practices when it comes to the representation of women on their boards of directors and in senior management. Initially, the OSC was alone on this, but several other regulators ultimately joined in with rule changes of their own in this area.

Ontario approves measures to promote corporate gender diversity

Market structure is the other major field where regulators broke new ground in 2014. The CSA proposed several fundamental reforms to their trading rules (which remain under consideration), and promised to tackle uncharted territory by reviewing maker-taker fee models and addressing concerns about the cost of market data (that has yet to take place). Regulators also approved a novel trading model during the year that uses speed bumps to combat the technological advantages of certain high-frequency traders (HFT) — a market-led solution to the concerns of some in the industry about the impact of HFT.

Will “speed bumps” level the HFT field?

From HFT to retail investor protection, many of these issues will remain on the regulators’ radar in the year ahead. Despite all the progress, there is still much to be done.