On August 25, 2015, the participating jurisdictions of the proposed Cooperative Capital Markets Regulatory System (the “Cooperative System”) made further advances towards the establishment of a harmonized regulatory framework for the Canadian capital markets. The participating jurisdictions are British Columbia, Saskatchewan, Ontario, New Brunswick, Prince Edward Island, Yukon Territory, and Canada. In particular, the following updates were provided in respect of the Cooperative System:
- publication for comment of a revised consultation draft of the uniform provincial / territorial Capital Markets Act (the “CMA”);
- publication of initial draft regulations (the “Regulations”) for the CMA; and
- publication of commentaries (the “Commentary”) on the revised consultation draft of the CMA and the draft Regulations.
Upon implementation, the CMA, the Regulations, and the federal Capital Markets Stability Act will comprise the Cooperative System and will establish a single regulatory authority (the “Authority”) in the participating jurisdictions. The revised CMA and the Regulations are open for comment until December 23, 2015. No timeline for implementation of the Cooperative System has been established.
An initial consultation draft of the CMA was published for comment in September 2014. The revised CMA reflects comments from law firms, industry participants and investor advocates, as well as changes made as a result of discussions amongst participating jurisdictions. The following is a summary of certain key points in respect of the revised CMA:
- the CMA will retain a platform approach to market regulation where fundamental provisions of law will be set forth in the CMA and detailed requirements will be set forth in the Regulations. This approach differs notably from the approach to regulation followed in Ontario. The platform approach allows for continuity with current securities legislation in most participating jurisdictions and will provide flexibility for addressing required changes to the Regulations in the future;
- certain key definitions in the CMA, including the definition of ‘misrepresentation’, were revised to be consistent with existing securities legislation;
- the CMA will maintain the current regulatory approach with respect to registration, prospectuses, continuous disclosure and take-over bids. Notably, the CMA was revised to permit the Authority to make regulations with respect to alternative offering documents (other than a prospectus), while noting that no regulations are currently contemplated in this regard;
- the CMA was revised to take a more expansive approach with respect to insider trading prohibitions, tipping and recommendations provisions, and ‘whistleblower’ protections;
- revisions to the CMA were made to clarify and address concerns raised with respect to regulatory proceedings, compliance and enforcement, civil liability, confidentiality and disclosure; and
- provisions governing the transition from existing securities legislation to the CMA have not been included in the revised CMA. The Commentary indicates the participating jurisdictions have undertaken a significant amount of work in respect of transition-related matters with a transition plan to be unveiled in the future.
Unlike the CMA, the Regulations were not previously available. As noted above, the Regulations set forth the detailed requirements of the Cooperative System. The following is a summary of certain key points in respect of the Regulations:
- the Cooperative System will maintain the existing system of national and multilateral instruments, forms and policies, which will simplify the transition to the Cooperative System;
- the Regulations will replace all local rules, regulations, blanket orders in effect in the participating jurisdictions. Existing local rules will either be carried forward, modified or terminated by the Regulations. The Commentary includes a table of concordance for each jurisdiction. The Regulations will not affect legislation, instruments and policies existing in non-participating jurisdictions;
- draft provisions in respect of derivatives and strip bonds, trade repositories and derivatives data reporting have been included in the Regulations; and
- the Commentary outlines certain technical and other minor changes that have been made to existing national and multilateral instruments, forms and policies in order to implement the Cooperative System. By and large, these changes have been made to address any inconsistencies existing between legislation in the participating jurisdictions. In particular, certain instruments and policies which were in force in jurisdictions other than Ontario will now be applicable in Ontario. Similarly, certain provisions which were in effect in Ontario have now been extended to other participating jurisdictions.
Of note, the Regulations do not address the following key issues:
- capital raising exemptions remain a work in progress. The Commentary indicates that the participating jurisdictions are considering how to harmonize existing regulatory differences between jurisdictions and accommodate current regulatory initiatives. The Commentary also confirms that the Regulations will include:
- an existing security holder exemption for issuers listed on a specified Canadian exchange;
- a friends, family and business associates exemption;
- crowd-funding exemptions; and
- an offering memorandum exemption, with investment limits for each purchaser.
- provisions governing the interface between the Cooperative System and non-participating jurisdictions such as Alberta and Québec. Due to the size and importance of the Alberta and Québec capital markets, the development of an interface mechanism will be critical to Canadian capital markets and industry participants.
- fee regulations setting forth the payment of fees by issuers, registrants and other market participants.
Again, the revised CMA and Regulations are open for comment until December 23, 2015. The Commentary indicates that draft provisions regarding fees and capital raising exemptions will be published for comment in the coming months. There is no timeline indicated for the release of interface provisions, revised Regulations or a further revised CMA.