While the securities industry supports the move to create a new cooperative regulator, the Investment Industry Association of Canada (IIAC) said Tuesday it is concerned about how all the parts are going to fit together.

In its submission on the draft provincial and federal securities legislation that would create the proposed Cooperative Capital Markets Regulatory System (CCMRS), the IIAC stresses the importance of minimizing market and industry disruptions as the new system is created.

The comment period on the draft legislation closed Dec. 8 after being extended for a month. It was also announced last week that draft rules won’t be published until some time in the first quarter of 2015.

CCMRS draft initial regulations delayed until spring

The IIAC noted that it is tough to fully comment on the legislation, given that the detailed rules have not been released, and that certain aspects of the legislation has yet to be finalized.

Notwithstanding that issue, the IIAC argues that the new laws should follow existing securities law as much as possible, but it notes that the proposed provincial law “is silent on many requirements”.

The IIAC also points out that there are “a number of proposed wording and concept changes between existing securities law requirements and those proposed in the [proposed new provincial law].”

Overall, the IIAC’s submission, which is directed at the participating governments (British Columbia, Ontario, New Brunswick, Saskatchewan, Prince Edward Island and the federal goverment) stresses that the new legislation should be “aligned and congruent with the existing statutes to the extent possible”, in order to minimize disruptions in market activity, confusion, and unnecessary costs to market participants.

The initiative is particularly complex because it involves new legislation at both the federal and provincial levels, new rules (which are delayed), and new interfaces between the provinces that participate and those that don’t, and between the regulators and self-regulatory organizations (SROs).

In its submission, the IIAC stresses that it fully supports the effort to create a cooperative regulator, and the federal government’s role in regulating systemic risk. However, it cautions that the initiative “must not result in undue regulatory burdens”.

“It is vital that this interaction not increase the costs to market participants or result in disruption of their activities in the non-participating jurisdictions. The IIAC urges the participating governments to provide guidance on how it expects this interaction to work, and whether there will be an enhanced and revised ‘passport’ regime,” it says. It also calls for possible guidance on the role that a new authority would play with the non-participating jurisdictions.

The IIAC also sets out its vision for the new authority to function effectively, which includes: that the transition to the new provincial legislative framework must be seamless; that there should be no major changes to existing securities laws; and, that the new federal law should not impose undue regulatory burdens, and that the power to regulate systemic risk must be used “judiciously and in a manner that reflects coordination and cooperation with other prudential regulators such as the Office of the Superintendent of Financial Institutions and the Bank of Canada”.

It also argues that a simplified, common set of fees should be developed “to streamline and harmonize the currently duplicative and cumbersome system.”

Additionally, the IIAC says that the policy and rule-making process must be open and transparent; and, that the new regulator’s governance structure must follow best corporate governance practices.

“To achieve these above objectives,” the IIAC suggests that governments should consider a minimum one-year transition period for the new legislation “to minimize market impact and to allow the authority and its staff to work towards harmonized practices.”