NATIONAL CAPITAL MARKETS POLICY
MAKING IN CANADA
1st Annual Securities Law Symposium
Association of Corporate Counsel
Lawrence E. Ritchie
Osler, Hoskin & Harcourt LLP
October 1, 2014
1
Where Does Regulation Come From?
2
The current Canadian legal and regulatory framework
reflects our Federal System
•
13 securities regulators
accountable to 13 governments
•
Partially harmonized securities
statutes and approaches to
regulation
•
Different strategic directions and
priorities
•
Cooperation through the Canadian
Securities Administrators, but no
national accountability
•
Not able to easily and effectively
address rapidly changing
environment
3
The current Canadian Capital markets regulatory framework
“co-ordinated” by the CSA
Autorité des marchés
financiers
British Colombia
Securities
Commission
PEI Office of
Superintendent of
Securities
Manitoba Securities
Commission
Nova Scotia
Securities
Commission
New Brunswick
Financial and
Consumer Services
Commission
Canadian Securities
Administrators
Newfoundland Office
of the Superintendant
of Securities &
Financial Services
Regulation Division
Chair, Vice-Chair
and Secretariat
Northwest
Territories
Securities Office
Nunavut Securities
Office
Office of
Superintendent of
Securities, Yukon
Ontario Securities
Commission
Alberta Securities
Commission
Financial and
Consumer Affairs
Authority of
Saskatchewan
4
Passport System
•
MI 11-102 – Passport System was adopted by the ‘passport jurisdictions’ in 2008
(being all the provinces and territories except ON) pursuant to a 2004
memorandum of understanding among the passport jurisdictions with a goal to
“move ahead with a passport system for an improved securities regulatory
framework, to develop highly harmonized securities laws..., and to explore further
options to consolidate and/or strengthen coordination and consistency of
securities laws among provinces and territories...”.
•
Basics: prospectus materials, a request for exemptive relief, or a submission to
become a registrant is reviewed by the principal regulator (so for a BC company,
the BCSC etc). There is a deemed receipt, a deemed decision, or a deemed
registration from the non principal regulators once a receipt is issued, a decision
made, or a firm or individual registered by the principal regulator.
•
According to 11-102CP – Passport System, the passport system “gives each market
participant a single window of access to the capital markets in multiple
jurisdictions.” The single window of access being the market participant’s principal
regulator.
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The Passport System
Autorité des marchés
financiers
British Colombia
Securities
Commission
PEI Office of
Superintendent of
Securities
Manitoba Securities
Commission
Nova Scotia
Securities
Commission
New Brunswick
Financial and
Consumer Services
Commission
Canadian Securities
Administrators
Newfoundland Office
of the Superintendant
of Securities &
Financial Services
Regulation Division
Chair, Vice-Chair
and Secretariat
Northwest
Territories
Securities Office
Nunavut Securities
Office
Office of
Superintendent of
Securities, Yukon
Ontario Securities
Commission
Alberta Securities
Commission
Financial and
Consumer Affairs
Authority of
Saskatchewan
6
Non-harmonization of securities
legislation
• As of 2012:
– Approximately 120 carve-outs in the National
Instruments
– 3 Multilateral Instruments
– More than 800 local rules
7
Continued Disharmony
• Proposed Amendments to NI 58-101 Disclosure of Corporate Governance
Practices
• OSC Staff Notice 15-702 Revised Credit for Cooperation Program
• Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-theCounter Markets
• Proposed Multilateral Instrument 45-107 Listing Representation and
Statutory Right of Action Disclosure Exemptions
• Proposed OSC Rule 24-503 Clearing Agency Requirements and Related
Companion Policy
• Proposed New Crowdfunding Exemptions
• Proposed Changes to Prospectus Exemptions
8
The Ontario enforcement “mosaic””
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“As an investment banker and a securities regulator,
I’ve seen the inefficiency that flows from our
current system of each of our 13 provinces and
territories having its own securities commission. It
leads to not only inefficiency, but it leads to an
impact on enforcement and on the oversight of
systemic risk.”
Honourable Joe Oliver
Minister of Finance, Canada
(Globe & Mail, April 23, 2014)
10
If only we could have a SINGLE regulator ….
•
One statute and approach to
regulation
•
One board of directors and executive
team
•
One strategic direction and set of
priorities
•
One voice internationally
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Integrated, empowered local offices
applying national standards
•
Designed to address rapidly changing
environment
11
History - Recommendations for Change
1935
• Royal Commission on Price Spreads
1964
• Royal Commission on Banking and Finance
1967
• Ontario Securities Commission
1979
• Federal government
1994
• Federal draft MOU
2003
• Wise Persons’ Committee
2006
• Crawford Panel (Ontario)
•Proposes federal “Investment Securities Board’
•Proposes cooperative regulatory body
•Proposes joint body called “CANSEC”
•Proposals for a Securities Market Law for Canada
•Proposes “Canadian Securities Commission”
•Proposes comprehensive federal securities legislation
•Proposes a common regulator & common securities law
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Path to a Cooperative System
2009
May 2010
July 2010
April 2011
Dec 2011
• Expert Panel on Securities Regulation
•Proposes “Canadian Securities Commission” and a Path to get there (“Transition
Office” established
• Proposed Federal Securities Act tabled in Parliament
• Transition Plan
•Vision and process for Canadian Securities Regulatory Authority
• Supreme Court Reference hearing on proposed act
•All provinces but Ontario argue it would be unconstitutional
• Supreme Court opinion on proposed act
•Not within Parliament’s jurisdiction as currently drafted
•Both levels have authority; cooperative approach available
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Proposed Canadian Securities Act (2010)
Comprehensive securities legislation covering
 All matters currently included in provincial securities
laws
 Derivatives (both exchange-traded and over-thecounter)
 Systemic risk
 Criminal offences related to capital markets
14
Supreme Court Reference (2011)
The Question:
 “Is the proposed Canadian Securities Act within the
legislative authority of the Parliament of Canada?”
Argument’s Focus:
 General branch of the trade and commerce power
The answer:
 No
 The Securities Act as presently drafted is not valid under the
general branch of the federal power to regulate trade and
commerce under s. 91(2) of the Constitution Act, 1867.
15
Supreme Court — Overreach
“In sum, the proposed Act overreaches genuine
national concerns.
“While the economic importance and pervasive
character of the securities market may, in principle,
support federal intervention that is qualitatively
different from what the provinces can do, they do not
justify a wholesale takeover of the regulation of the
securities industry which is the ultimate consequence
of the proposed federal legislation.”
16
Supreme Court — Federal Jurisdiction
Areas of federal jurisdiction:
 Fair, efficient and competitive markets (para.
117)
 The integrity and stability of Canada’s financial
system (para. 123)
 National data collection (para. 121)
 Prevention of and response to systemic risks
(para. 128)
 Other matters that are “genuinely national in
scope and qualitatively distinct from those falling
under provincial heads of power.” (para. 70)
17
Supreme Court — Provincial Jurisdiction
Areas of provincial jurisdiction:
 Investor protection (para. 128)
 Trades or occupations within a province (para.
117)
 Local markets (para. 115)
 Day-to-day, routine and/or administrative
aspects (para. 125)
18
Supreme Court — Cooperative Approach
“It is open to the federal government and the provinces
to exercise their respective powers over securities
harmoniously, in the spirit of cooperative federalism.
“The experience of other federations in the field of
securities regulation, while a function of their own
constitutional requirements, suggests that a cooperative
approach might usefully be explored, should our
legislators so choose, to ensure that each level of
government properly discharges its responsibility to the
public in a coordinated fashion.”
(para 9)
19
Path to a Cooperative System
Mar
2012
Mar
2013
• Government proposes cooperative approach
•Consulting interested provinces and territories
• Government reiterates cooperative proposal
• Announces plan for federal-only initiative if no timely
agreement
20
Sep
2013
• Agreement in Principle for cooperative system
• British Columbia, Ontario & Canada
• Others invited to join
July
2014
• Amended Agreement in Principle for cooperative system
• Saskatchewan and New Brunswick join
21
Proposed Cooperative Capital
Markets Regulator
 Administering both federal and provincial
legislation and a single set of regulations
 Operationally independent
 Self funded through a single set of fees
 Directed by an expert board of independent
directors
 Overseen by a Council of Ministers
22
Structure of Regulator
 Executive head office in Toronto
 Regulatory office in each participating jurisdiction
 Nationally integrated executive management team
 Effective leadership and international voice
 Adjudicative tribunal with capital markets
expertise
 Responsive to investors, regions and market
sectors
23
Structure of Regulator
Board of Directors
Regulatory Division
Chief Regulator
Adjudicative Division
Chief Adjudicator
Deputy Chief Regulators
Associate Chief
Adjudicators
Proposed Cooperative Legislation
 A uniform act adopted by each participating
province and territory
• addresses all areas currently addressed by
provincial and territorial securities legislation
 A complementary federal act
• applies throughout Canada
• addresses criminal matters and matters
relating to systemic risk
25
Consultation Draft:
Provincial Capital Markets Act
•Consultation draft released on September 8, 2014
• Comment period ends November 7, 2014
•Notable Features:
– Intended to promote flexibility in responding to market
developments
• Leaves detailed requirements to regulations
– Consolidation and enhancement of enforcement tools
under the Authority
26
Provincial Capital Markets Act:
Structure
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Part 1
Part 2
Part 3
Part 4
Part 5
Part 6
Part 7
Part 8
Part 9
Part 10
Part 11
Part 12
Part 13
Part 14
Part 15
Interpretation
Recognized Entities
Designated Entities and Other Market Participants
Registration
Prospectus Requirements
Trading in Derivatives
Disclosure and Proxies
Take-Over Bids and Issuer Bids
Market Conduct
Orders, Reviews and Appeals
Administration and Enforcement
Civil Liability
Civil Liability for Secondary Market Disclosure
General
Regulations, Forms and Policies
27
Provincial Capital Markets Act:
Designation Order
• Additional regulatory tool in addition to “recognition” or
“registration”
• Allows certain entities to apply for a designation order to be
designated as a trade repository, credit rating organization,
investor compensation fund, dispute resolution service,
information processor or marketplace
• This designation will be required for certain market activities –
e.g., in connection with issuing a credit rating
• Designated entities are not required to regulate their members
or participants, but it is expected that the Authority will impose
requirements through designation orders and the regulations
28
Provincial Capital Markets Act:
Takeover Bids
•
Will be dealt with in the regulations
•
Harmonizes Ontario’s regime with the other
CSA jurisdictions
29
Provincial Capital Markets Act:
Derivatives Regulation
• “Derivatives” broadly defined to allow for a
flexible regulatory framework
• Not all derivatives and derivatives trading is
regulated
• Certain derivatives will fall within the definition of
“security”; others will not
30
Provincial Capital Markets Act:
Civil Liability
• Reverses the burden of defence for certain defences in
primary market actions, including the reasonable
investigation defence
• Civil right of action for insider trading and related offences
31
Provincial Capital Markets Act:
Auditor Oversight Organizations
•
Provisions are similar to current BC, Sask and NB
legislation
• Anticipated that Ontario would repeal the Canadian Public
Accountability Board Act (Ontario), 2006
• Decisions of auditor oversight organizations are subject to
review by the Tribunal
32
Provincial Capital Markets Act:
Strengthening Enforcement
• Common database will contain information from
surveillance, complaints, reviews and investigations
• Facilitate better cooperation with law enforcement
agencies and other regulatory authorities
• Enhanced powers to obtain production orders and compel
records and information from market participants
• Relaxes Ontario’s confidentiality requirement for
compelled evidence and instead permits the Chief
Regulator to prohibit the communication of information
related to the investigation for a specified period
33
Provincial Capital Markets Act:
Whistleblower Protection
• Prohibits employers from retaliating against employees for
providing information to the Authority, testifying in a related
proceeding or expressing an intention to do so
34
Consultation Draft:
Federal Capital Markets Stability Act
• Consultation draft released September 8, 2014
• Comment period ends November 7, 2014
• Notable Features:
– Enhanced powers for data collection
• To be prescribed in regulations
– Regulation of market infrastructure entities, credit
rating organizations, and intermediaries
– Intended to monitors and address systemic risks
35
Capital Markets Stability Act:
Approach
• National data collection powers to monitor activity in
capital markets and detect and mitigate systemic risks
– Regulations regarding information collection and retention
– Coordinate data collection with other regulatory authorities
• Empowering the Authority to take decisive action across
Canada to address threats to financial stability
• Cooperate with coordinate with other regulatory
authorities to reduce the burden on market participants
36
Capital Markets Stability Act:
Addressing Systemic Risk
• Allows Authority to designate market entities –
e.g., trading facilities, clearing houses,
intermediaries, etc. – as systemically important
market infrastructure entities
• Allows Authority to designate products and
practices as systemically risky
• Thereafter empowered to make regulations and,
in certain cases, orders, to address the systemic
risk posed by the entity, product or practice
37
Capital Markets Stability Act:
Addressing Systemic Risk
• Empowers Authority to make a temporary order
of national application to prohibit a practice or
activity, suspend or restrict trading in a security or
derivative, or suspend or restrict trading on a
trading facility.
• Subject to the oversight of the Minister of Finance
of Canada
38
Target Milestones
December 19 2014
June 30 2015
Fall 2015
•Draft initial regulations
•Publish for comment
•Enact cooperative legislation
•Uniform provincial/territorial legislation by each province/territory
•Complementary federal legislation by Parliament
•Capital Markets Regulator
•Target launch date
39
Ongoing Debate
 Quebec has indicated an intention to challenge the proposed
legislation.
 Alberta has announced its own proposed model for securities
regulatory reform which would retain provincial commissions
and agencies.
“Today’s announcement confirms our long-standing fear that Ottawa will
proceed with changes to Canada’s securities regulation system without the
support of two of its largest markets, Alberta and Quebec. This will leave
Canada with a more fractured system than the one we have today.”
Honourable Doug Horner
Minister of Finance, Alberta
Statement on National Common Securities Regulator, July 9, 2014
40
Reason for Optimism?
• Proposed New Rules for Hostile Takeover
Defences
– CSA Notice 62-306
• Announced September 11, 2014
– Harmonized Proposal
• Eliminates competing AMF proposal
– Notable Features:
• 50% Minimum Tender Condition
• 10 Day Automatic Extension
• 120 Day Bid Period
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