In the latest step toward establishing the Cooperative Capital Markets Regulatory Authority, the Department of Finance Canada has released a revised draft of the federal Capital Markets Stability Act (CMSA) for public comment. A copy is available here.

This is a revision to the draft Act that was originally released in September 2014. Public comments on that initial draft are posted on the CCMR website. The deadline for comments on the revised draft is July 6, 2016, making it a brief 60-day comment period.

While this draft of the CMSA still proposes to give the Authority broad powers to identify and address systemic risks in Canada’s capital markets, these powers appear to be significantly pared down from the previous version. The CMSA also enhances criminal offences relating to capital markets. More background is available in this commentary released with the draft CMSA.

The CMSA is the federal legislative component of the Cooperative Capital Markets Regulatory initiative amongst the federal government, five provinces and one territory. The revised provincial / territorial component, being the uniform Capital Markets Act, was released for public comment on August 25, 2015 for a 120-day comment period. Public comments on that legislation have been posted on the CCMR website. The revised draft CMSA has been anticipated for some time, and its absence from the last set of released consultation drafts in the summer of 2015 emphasized the logistical complications associated with this initiative.

Key Changes in the Draft Legislation

Some of the main changes in the new draft CMSA from the previous version include:

  1. Threshold for “Systemic Risk”: The definition has been revised to state that systemic risk must have the potential for a material adverse effect on the Canadian economy. In other words, threats to financial stability must be sufficiently large before the Authority can exercise its broad powers.
  2. Designating “Systemically Important” Entities: The revised draft removes the Authority’s power to designate trading facilities, clearing houses, credit rating organizations and capital market intermediaries as systemically important. The Authority will generally focus, instead, on systemic risks posed by activities, products and benchmarks.
  3. Regulatory Burden: The revised draft requires the Authority to coordinate its activities – including data collection – with other financial regulators, and consider the extent to which products, practices and benchmarks are already regulated before implementing new requirements.
  4. Procedural Fairness: The revised draft gives market participants the opportunity to be heard, rather than the opportunity to make representations, with respect to certain orders or activities of the Authority that directly affect those market participants.

A Step Forward, But Much Work Remains

The release of this consultation draft is a step forward, particularly because it reflects the Trudeau government’s support for the initiative. But a number of crucial promised elements of the initiative still remain to be delivered, putting the previously published timeline for the project’s implementation in question. Most notably, the public is still awaiting the proposed legislative framework to establish the governance and structure of the cooperative regulator, and the appointment of the initial Board of Directors. (The appointment of the Chair of the Board, Bill Black, was announced on July 24, 2015.)

Both critics and supporters of the initiative point to the delays in progress as giving rise to increased uncertainty surrounding the future of capital markets regulation in Canada, and have urged participating jurisdictions to clarify the project’s direction and pace of implementation. Commentators have also emphasized the need for the participating jurisdictions to clarify how the cooperative regime will integrate its regulatory activities with those of non-participating jurisdictions, such as Quebec and Alberta.