On May 26, 2010 the federal government released its proposed Canadian Securities Act which would create a national Canadian Securities Regulatory Authority (the CSRA). It also announced that it will bring a reference to the Supreme Court of Canada to ask the question: Is the proposed Canadian Securities Act within the legislative authority of the Parliament of Canada? Some provinces have objected to a national securities act and regulator on the basis that such legislation is under provincial jurisdiction. The government is taking the proactive step of seeking the Supreme Court's opinion in order to have certainty on the constitutionality of the federal securities act before the act is debated in the ordinary parliamentary process. The national regime is described as “voluntary”, permitting provinces to “opt-in” to national regulation.
The mandate of the proposed CSRA is almost identical to existing provincial mandates: (i) to protect investors from unfair, improper or fraudulent practices and (ii) to foster fair, efficient and competitive capital markets in which the public has confidence. An additional mandate requires the CSRA to 'contribute, as part of the Canadian financial regulatory framework, to the integrity and stability of the financial system'. This added aspect is largely designed to meet concerns about systemic risk that have arisen and the need to formalize coordination of information and policy among all regulators who have oversight of the financial and capital markets. A significant addition is the power to designate new securities or market participants as coming under the scope of the legislation.
The proposed act relies considerably on recommendations from the Hockin Report which was delivered by an expert panel in January, 2009. How much will change under the proposed new regime? The substantive requirements of securities law (registration, disclosure, prospectus receipt and take-over bid processes) appear to remain quite consistent with existing legislation and rules. New requirements in future will largely be made through regulations. Under the proposed regime, the CSRA would have the power to make new regulations subject to public consultation and consent of the federal Minister of Finance.
A significant but widely anticipated change is the creation of a separate tribunal as a division of the CSRA. The Canadian Securities Tribunal would hear enforcement proceedings. This separation of the tribunal function from the operational aspect of the Commission has been widely recommended to address the possibility of bias in hearings and concerns about perception of bias on the part of tribunals in favour of Commission staff during enforcement proceedings.
Considerable changes are proposed for enforcement, presumably to meet criticisms that securities enforcement in Canada is sometimes fragmented and ineffective. An effort is also made to clarify the confusing overlap of jurisdiction between provincial regulators and federal criminal authorities. Some changes are proposed to the offences themselves, in particular insider trading. A new offence of front running has been added and the anti-tipping provisions have been strengthened. Substantial new powers of investigation have been proposed. Other changes are designed to enhance coordination and consistency in approach among enforcement staff and to ensure best use of resources. The offence regime in the new act would apply across Canada in participating as well as non-participating jurisdictions. Many of the effects of such proposed changes wi ll only be known once operational decisions about assigning resources have been made. If greater resources are made available to prosecute criminal securities offences, this may result in more proceedings or more aggressive stances by prosecutors. New legislation, by itself, will not determine how these future priorities are set.
To address regional concerns, the government stated "the new regulator will take advantage of the expertise and infrastructure of participating provinces and territories. The organization will be an agency with a strong network of local offices" with authorization to make "key decisions that reflect local market demands". Strong regional offices were anticipated in order to address concerns about concentration of authority in Ontario and to acknowledge the particular expertise in existing commissions and the local needs of market participants and investors. It will be some time, however, until the detailed operational plans and structure are known.
As to timing, this is an important step on a road that we will be on for some time to come. The government estimates that the Supreme Court decision on the constitutional question will be available some time in 2011. After that, the proposed legislation would have to be considered by Parliament. The launch of the CSRA is proposed for 2012-2013 with continued consultations on many of the critical operational aspects to occur in the interim period. The important questions as to rights affected and new approaches by regulators will only be sorted out as these policy and operational decisions are made.