Canadian securities regulation
Canadian securities regulation is managed through laws and agencies established by Canada's 13 provincial and territorial governments. Each province and territory has a securities commission or equivalent authority and its own piece of provincial or territorial legislation.
Unlike any other major federation, Canada does not have a securities regulatory authority at the federal government level. Provincial governments began to establish regulatory agencies in 1912 (in Manitoba), and the Privy Council decided in Lymburn and Mayland,  A.C. 318 that such legislation is authorized under the provincial property and civil rights power.
Notwithstanding the lack of a federal regulator, the majority of provincial security commissions operate under a passport system, so that the approval of one commission essentially allows for registration in another province. However, concerns with the system remain. For example, Ontario, Canada’s largest capital market, does not participate in the Passport regime.
Concerns with the provincial system of securities regulation has led to repeated calls for a national securities system in Canada. Currently, the Government of Canada is working towards establishing a national securities regulatory system that it says will provide:
- better and more consistent protection for investors across Canada;
- improved regulatory and criminal enforcement to better fight securities-related crime;
- new tools to better support the stability of the Canadian financial system;
- faster policy responses to emerging market trends;
- simpler processes for businesses, resulting in lower costs for investors; and
- more effective international representation and influence for Canada.
Current Structure of the Canadian Securities Regulatory System
Each province has its own securities regulator, which is either a self-funded commission or an entity funded within a larger government department. The securities regulator administers the province’s securities act and, correspondingly, promulgates its own set of rules and regulations. The securities regulator relies on the work of two national self-regulatory organizations, the IIROC (Investment Industry Regulatory Organization of Canada) and the MFDA (Mutual Fund Dealers Association) for most aspects of regulation of the organizations' member firms and their employees. Accountability for securities regulation extends from the securities regulator to the Minister responsible for securities regulation and, ultimately, the legislature, in each province.
The largest of the provincial regulators is the Ontario Securities Commission. Other significant provincial regulators are the British Columbia Securities Commission, the Alberta Securities Commission and the Autorité des marchés financiers (Québec).
The provincial and territorial regulators work together to coordinate and harmonize regulation of the Canadian capital markets through the Canadian Securities Administrators (CSA). The major provincial securities regulators also participate in various international co-operative organizations and arrangements.
The CSA has focused its efforts on:
- developing uniform rules and guidelines for securities market participants;
- coordinating approval processes;
- developing national electronic systems through which regulatory filings can be made with and processed by all jurisdictions; and
- coordinating compliance and enforcement activities.
The most important CSA effort is the implementation of the passport system. Under the passport system, a market participant can obtain a decision from its principal regulator and, through a simple filing, have the same decision deemed to be issued under the legislation of all other participating jurisdictions, in essence providing a passport to undertake capital markets activity across Canada. The passport system covers prospectus filings, registration of securities firms and individuals, and certain types of discretionary exemptions. Ontario is recognized by the other jurisdictions as a principal jurisdiction for passport decisions but the Ontario Securities Commission has not adopted the passport rule itself. As a result, Ontario market participants have access to other jurisdictions through the passport system but participants from other jurisdictions do not have access to Ontario. Instead, the Ontario Securities Commission follows a "mutual reliance" policy in which it decides in each case whether to accept the decision of the principal regulator. Ontario says it supports the harmonization and improved coordination of securities regulation in Canada; however, it does not wish to participate in the passport system because it would prefer creation of a national securities regulator.
Public education on financial literacy, investment and financial decision making is a secondary focus of the provincial regulators. The Ontario Securities Commission (OSC) set up the non-profit organization Investor Education Fund (IEF) for this sole purpose. Funded by the OSC but acting independently, IEF’s primary goal is to provide Canadians with financial tools and information to improve financial literacy.
Concerns with the Current Structure
On February 21, 2008, the Government of Canada appointed an Expert Panel on Securities Regulation to provide advice and recommendations on securities regulation in Canada. On January 12, 2009, the Expert Panel on Securities Regulation released its final report, in which they highlighted several concerns with the current structure.
First, the Panel was concerned that the fragmented structure, requiring decisions to be coordinated across up to 13 jurisdictions, makes it difficult for Canadian securities regulators to react quickly and decisively to capital market events. One illustration of this difficulty was the adoption in September 2008 by some of Canada’s international counterparts, including the United States and United Kingdom, of restrictions of short-selling of certain stock as a temporary stability measure. The Canadian response lagged behind the coordinated efforts of the United States and the United Kingdom, and was not uniform across the provinces. A second illustration was the delay between the freezing of the non-bank Asset Backed Commercial Paper (ABCP) market in August 2007 and the release of a consultation paper by the Canadian Securities Administrators to seek input on a number of proposals that aim to prevent similar capital market failures in the future. The Panel found that the fragmented Canadian securities regulatory structure is prone to foster slow securities regulatory responses, which makes Canada vulnerable to market and reputational risks.
Second, the Panel expressed concern that the Canadian system of provincial mandates is incongruent with the national response required to address developments in capital markets that are increasingly national and international in scope. They found that one of the important lessons from the recent capital markets crisis throughout 2008-2009 is that systemic risk is increasingly presenting itself in capital markets rather than being solely confined to banking institutions. The Panel reported that effectively addressing systemic risk requires the coordination and collaboration of all financial sector regulators in Canada. It also requires working effectively with international counterparts. The Panel did not believe that the multiple provincial and territorial securities regulators are able to work effectively as part of a national systemic risk management team, as structural challenges will likely compromise its ability to be proactive, collaborative, and generally effective in helping to address larger capital market issues on a timely basis. A delayed response, which is poorly managed by any one of the securities regulators, could have a detrimental impact on the integrity of Canada’s capital markets as a whole.
Finally, the Panel reported that the current structure fundamentally misallocates resources, causing securities regulation to be less efficient and effective. Resources must be devoted to keep 13 separate securities regulators operating in Canada. This is inefficient since each jurisdiction dedicates a different level of resources to securities regulation, which causes the intensity of policy development, supervision, and enforcement activities to vary across Canada. In addition, most efforts are duplicative, which results in unnecessary costs, overstaffing, and delays. Canadians, in turn, are afforded different levels of investor protection depending on the jurisdiction in which they reside or invest. Second, market participants will continue to be burdened with undue compliance costs, even with the full implementation of the passport system. Market participants will still have to pay fees in up to 13 jurisdictions. They will still have to deal with the general inefficiencies associated with differences between provincial statutes and regulations, the ongoing use of local rules, and variations in the interpretation of national rules.
Efforts to establish a single Canadian securities regulator
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Over the past 45 years, the vast majority of studies by independent expert and academic analysts have come out in favour of establishing a Canadian securities regulator, beginning with the Porter Report in 1964 and the Kimber Report in 1965. In the most recent decade, the push for a national regulator has been particularly strong, with reports delivered from the Wise Persons Committee, the Crawford Panel and the Expert Panel on Securities Regulation.
In the most recent final report of the Expert Panel, the Panel made a series of recommendations, the most important being the establishment of a Canadian securities regulator to administer a single securities act for Canada. The Expert Panel provided a recommended transition path to bring this about, with one key step being the creation of a transition and planning team to oversee the transition to a federal regulatory system.
On June 22, 2009, the Government of Canada acted on this recommendation and announced the launch of the Canadian Securities Transition Office to lead Canada’s effort to establish a Canadian securities regulator. The Transition Office is mandated to lead all aspects of the transition, including the development of the proposed federal securities act and the accompanying regulations, collaborating with provinces and territories, and developing and implementing a transition plan for organizational and administrative matters.
Mr. Doug Hyndman is the Chair and Chief Executive Officer of the Transition Office, and Mr. Bryan Davies is the Vice-Chair. Mr. Hyndman had been Chair of the British Columbia Securities Commission since 1987. Mr. Davies has been Chair of the Canada Deposit Insurance Corporation since 2006 and continues in this part-time role. Mr. Davies was previously the Chief Executive Officer and Superintendent of the Financial Services Commission of Ontario.
All Canadian jurisdictions have been invited and encouraged to join in the Government of Canada’s effort, which will build on the existing infrastructure and expertise of the provincial and territorial securities regulators. On October 15, 2009, the Government of Canada announced the appointment of an Advisory Committee of ten Participating Provinces and Territories to the Transition Office with representatives from Newfoundland and Labrador, Prince Edward Island, Nova Scotia, New Brunswick, Ontario, Saskatchewan, British Columbia, Yukon, Northwest Territories and Nunavut. The Advisory Committee provides advice to the Transition Office on the transition to a Canadian securities regulator to ensure that each of the participating governments’ interests are represented in the work of establishing a Canadian securities regulator.
To date, the Transition Office and the Government of Canada have completed two key steps in the transition to a Canadian securities regulator: on May 26, 2010, the Government of Canada tabled for information in the House of Commons the proposed Canadian securities act. The proposed Act was built on provincial securities regulation and harmonizes existing legislation in the form of a single statute. It benefits from the work of the Expert Panel on Securities Regulation and other reform efforts, and reflects domestic and international best practices. It proposes significant improvements in terms of governance, adjudication, financial stability, and regulatory and criminal enforcement, and provides a wide scope of authority to regulate financial instruments and participants in capital markets.
On July 12, 2010, the Transition Office delivered its Transition Plan for the Canadian Securities Regulatory Authority to the Minister of Finance and the ministers responsible for securities regulation of the participating provinces and territories.
Concurrent with releasing the proposed Canadian Securities Act, the Government of Canada referred the proposed Act to the Supreme Court of Canada for its opinion on the following question: Is the annexed proposed Canadian Securities Act within the legislative authority of the Parliament of Canada? The Supreme Court heard the reference on April 13 and 14, 2011. On December 22, 2011 the Supreme Court returned its decision that the proposed Canadian Securities Act as drafted would not be valid under the general branch of the federal trade and commerce power under section 91(2) of the constitution. However, the court indicated that some aspects of the act could be valid under that power. It also noted that it had not been asked for its opinion on the extent of Parliament's legislative authority under other heads of federal power, including the interprovincial and international trade branch of section 91(2). The court concluded that a cooperative legislative approach through which the federal and provincial governments exercise their powers collaboratively would be possible.
Following the Supreme Court of Canada decision, the Government of Canada announced that it was exploring with provinces the possibility of working jointly to establish a common securities regulator.
- Canadian Securities Administrators
- Financial regulation
- Financial regulatory authorities of Canada
- Securities Commission
- Ontario Securities Commission Notice 11–904
- Fact Sheet on Proposed Canadian Securities Act, fin.gc.ca
- Expert Panel Final Report and Recommendations, expertpanel.ca
- Investor Education Fund
- Government of Canada Appoints Expert Panel to Review Securities Regulation, fin.gc.ca
- Minister of Finance Welcomes Report on a Single Securities Regulator for Canada, fin.gc.ca
- For information on the non-Bank ABCP crisis in Canada, see Chant, John. “The ABCP Crisis in “The ABCP Crisis in Canada: The Implications for the Regulation of Financial Markets." Expert Panel on Securities Regulation (2009)
- Canada, Report of the Royal Commission on Banking and Finance (Ottawa: Queen’s Printer, 1964) (Porter Report) and Ontario, Report of the Attorney General’s Committee on Securities Legislation in Ontario (Toronto: Queen’s Printer, 1965) (Kimber Report).
- Expert Panel Final Report, expertpanel.ca
- Minister of Finance Announces Launch of Canadian Securities Regulator Transition Office, fin.gc.ca
- Mandate: Canadian Securities Regulator Transition Office fin.gc.ca
- Minister of Finance Appoints Advisory Committee on Canadian Securities Regulator, fin.gc.ca
- Government of Canada Moves to Protect Canadian Investors, fin.gc.ca
- Backgrounder: A New Canadian Securities Regulatory Authority, fin.gc.ca
- Transition Plan for the Canadian Securities Regulatory Authority, csto-btcvm.ca
- Supreme Court of Canada, scc-csc.gc.ca Archived June 14, 2011, at the Wayback Machine.