A definition of what constitutes a security in proposed federal legislation designed to lay the framework for the Cooperative Capital Markets Regulatory system (CCMRS) has some industry associations concerned.

The term “security” as defined in a draft copy of the Capital Markets Stability Act (CMSA) could include segregated funds, said Greg Pollock, president and CEO of Advocis, which should make the insurance industry and dual-licensed financial advisors a little uneasy. Pollock spoke at the 2014 Advocis Symposium on Wednesday in Toronto.

The CMSA is the federal arm of two pieces of proposed legislation put forward by the participating governments in the CCMRS. The act deals with national data collection, the management of systemic risk and capital-markets related criminal offences. The governments of British Columbia, New Brunswick, Prince Edward Island, Ontario and Saskatchewan, along with the federal government, are all participants in the CCMRS.

Under the proposed legislation, a security is defined as including “any contract, instrument or unit commonly known as a security.” Although the Ontario Securities Act uses the same wording, it also includes an exemption for “a contract of insurance issued by an insurance company licensed under the Insurance Act.” This exemption covers seg funds; the CMSA does not have such an exemption.

“We’re opposed to the Cooperative Capital Markets [Regulatory system] redefining securities in this way,” said Greg Pollock, president and CEO of Advocis. “We’re very confident that the way seg funds have been regulated in the country to date under the insurance regulators works very, very effectively.”

Frank Swedlove, president, Canadian Life and Health Insurance Association (CHLIA), also expressed concern over this definition of securities while speaking at the event. Said Swedlove: “The way that is being approached is kind of sneaky.”

Swedlove is worried that by including seg funds in the definition of a security the CCMRS will be adding to rather than streamlining the regulation of the industry. “The whole purpose really of the cooperative securities regulator is to reduce the amount of regulators,” he says, “yet for the insurance [industry] there’s the potential to actually increase the number of regulators.”

A second piece of legislation put forward at the provincial level to update current securities legislation — the Private Capital Markets Act (PCMA) — does include the exemption of seg funds from the definition of a security.

Both of the proposed acts are out for consultation until Dec. 8.