Another kick at the can

November 21, 2013 | Bruno Caron

On September 19, 2013, the Government of Canada, represented by the Minister of Finance of Canada, announced that it entered into an agreement in principle with the provinces of Ontario and British Columbia, and all other provincial and territorial governments that may choose to participate, to create before July 1, 2015, a new cooperative capital market regulatory system (“Cooperative System”). 

This new Cooperative System would be made of a new single operationally independent cooperative capital market regulator (“CMR”) composed of two divisions:

  • a regulatory division dealing with policy, regulatory formulation, advisory services and enforcement issues which would be led by a chief regulator; and
  • an adjudicative division consisting of an independent adjudicative tribunal (similar to the Québec Bureau de décision et de révision) led by a chief adjudicator.

As set out in the Department of Finance Canada’s announcement, the CMR will have an executive head office located in Toronto and a nationally integrated executive management team. Although the head office of the regulatory division will be located in Toronto, the adjudicative division will have sufficient members to conduct hearings (both in English and French) across Canada.

The chief regulator of the CMR will be supported by deputy chief regulators located in Vancouver and Toronto. The agreement in principle contemplates that each additional province or territory participating in the Cooperative System (“Participating Jurisdiction”) will have a regional office and a deputy chief regulator.

The agreement in principle also provides for the creation of an Executive Committee formed of the chief regulator and each deputy chief regulator.

As set out in the Department of Finance Canada’s announcement, the goals of the Cooperative System are to:

  • foster more efficient and globally competitive capital markets in Canada and facilitate the raising of capital across Canada and internationally through more integrated markets governed by innovative, responsive and flexible regulations on the basis of national standards reflected in cooperatively developed regulations consistently applied;
  • provide increased protection for investors through a combination of more nationally consistent and active compliance activities, more effective enforcement against misconduct, and improved coordination with police and prosecution authorities both within and outside Canada;
  • strengthen Canada’s capacity to identify and manage systemic risk on a national basis; and
  • enable Canada, through the single voice of the CMR, to play a more empowered and influential role in international capital market regulatory initiatives.

In addition to the CMR, the new proposed Cooperative System would also include the adoption by each Participating Jurisdiction of a uniform securities act addressing all matters of provincial or territorial jurisdiction in the regulation of capital markets.

The federal government will also adopt complementary federal legislation addressing criminal matters, market systemic risk in national capital markets, and national data collection matters.

Additionally, the new Cooperative System would simplify the current fee structure by reducing the current multiple fee structure into a single entity designed to make the new CMR a self-funded organisation.

The announced timing for the phase-in of the Cooperative System is ambitious. As set out in the Department of Finance Canada’s announcement, the next phase in the implementation will see the execution of a Memorandum of Agreement by each Participating Jurisdiction on or before January 31, 2014; the publication of the initial draft regulation on or before March 31, 2014; the execution of an agreement by each Participating Jurisdiction setting out the terms and conditions for the integration of their current securities regulatory agency or commission into the CMR on or before May 30, 2014, and the enactment of provincial legislation by each Participating Jurisdiction on or before December 31, 2014. 

The Government of Canada will lend funds to the CMR to cover its deficiency in funding during the transition period up to the date that the Cooperative System will be in operation. In addition, the Federal Government will make payments to Participating Jurisdictions that will lose net revenue (presumably from the disappearance of the fees collected by their respective provincial securities commission) resulting from their participation in the Cooperative System. 

Finally, the CMR will use its best efforts to negotiate and implement an interface mechanism (a new passport system) with each jurisdiction that is not a Participating Jurisdiction such that the Cooperative System is effectively of national application. 

Thus far, the reaction to the Cooperative System among non-Participating Jurisdictions and market participants has been positive with the exception of Québec and Alberta. Nicolas Marceau, Québec Minister of Finance, expressed shock over the Cooperative System which he described as running counter to the Constitution and possibly having significant adverse consequences for the province’s financial industry representing more than 150,000 workers. Doug Horner, Alberta’s Minister of Finance, was surprised not all provinces were consulted on this proposal before it was announced.

Meanwhile, on the side of market participants, the Canadian Bankers Association and Ontario Teachers’ Pension Plan voiced their supports for the Cooperative System being proposed by Ottawa, Ontario and British Columbia.

It remains to be seen if the proposed Cooperative System will pass a judicial challenge likely to be announced by Québec in the coming months.


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