On January 12, 2009, the Expert Panel on Securities Regulation (the “Panel”) delivered its final report (the “Report”) as well as a draft federal securities act (“Act”) to the federal Minister of Finance and the provincial and territorial Ministers responsible for securities regulation. The Report reflects the Panel’s opinion on how to improve the structure, content, and enforcement of securities regulation in Canada. Since its release, the finance ministers of the provinces of Alberta, Manitoba and Quebec have raised objections to the Panel’s recommendation to create a national securities regime. In its most recent budget, the federal government welcomed the Report and has made a commitment to table securities legislation this year.

The Report recommended a more principles-based approach to securities regulation. While recognizing that there are potential risks to a principles-based approach, the Panel highlighted a number of benefits. Principles-based regulation would give businesses greater flexibility to adapt compliance practices in the increasingly sophisticated capital markets and strict rules would no longer bind businesses in ambiguous situations. In addition, principles-based regulation may facilitate better enforcement actions because businesses will be held accountable for rule infractions and for actions that are technically compliant but violate the public interest.

The Report noted that a uniform set of core objectives and principles will encourage a clearer understanding of the goals of securities regulation. According to the Panel, the guiding principles of securities regulation should include the reduction of systemic risk, recognizing that the cost of regulation should be proportionate to the benefits realized, maintaining the competitive position of Canada’s capital markets, facilitating innovation within the market, promoting informed participation of investors in the capital markets and acknowledging the differences between regions and sectors.

Recommended Regulatory Structure

The Panel believes that the current structure of securities regulation misallocates resources and makes it difficult for securities regulators to react quickly to capital market events, both domestically and internationally. The recommended structure includes the creation of a national securities commission, capital markets oversight office, governance board, nominating committee, council of ministers, independent adjudicative tribunal, and separate panels to represent the interests of investors and small issuers.

Canadian Securities Commission. The Panel recommended the establishment of a national securities commission (“Commission”) to administer the Act. The Canadian Securities Commission would be responsible for policymaking and rulemaking activities and the investigation and prosecution of regulatory offences. The executive management team of the Commission would be comprised of the Chair and Chief Executive Officer, several Vice-Chairs and an Executive Director. The Panel recommended that the Commission’s head office should be located in one of the four largest provinces being British Columbia, Alberta, Ontario or Quebec, however, encouraged the establishment of regional offices in major financial centres. These regional offices could specialize in the regulation of specific sectors or types of financial instruments. The Commission should be self-funding with fees set the recover the costs of administering regulation. The Panel encouraged the federal government to negotiate direct compensation arrangements with each of the provincial governments to ensure that revenue shortfalls are not provided through fees levied by the Commission. It is anticipated that the Commission would be accountable to the Minister of Finance, which would have the right to veto rules proposed by the Commission.

Capital Markets Oversight Office: The Panel recommended the immediate establishment of a Capital Markets Oversight Office reporting to the federal Minister of Finance.

Governance Board: The Panel suggested that a governance board (“Board”) be established to oversee the Commission. There was no consensus among the Panel members regarding the exact nature of the role of the Board. Certain Panel members were of the view that the Board should be focused on the operational effectiveness of the Commission, while other Panel members thought that the Board should be responsible for providing strategic perspective on regulatory affairs and providing an oversight role in policy and rule changes proposed by the Commission.

Federal-Provincial Nominating Committee: The nominating committee (“Nominating Committee”) would be responsible for recommending candidates for the Commission to the Minister of Finance. The Panel suggests that the Minister of Finance and the participating provincial provinces each be given the opportunity to appoint a member to the Nominating Committee. Council of Ministers: A council of ministers (the “Council”), composed of the Minister of Finance and a minister appointed by each participating province, would discuss the development of securities policy and the ongoing administration of the system.

Independent Adjudicative Tribunal. The Panel recommended the establishment of an independent adjudicative tribunal (“Tribunal”), which would promote the perception of fairness in the adjudication of regulatory matters. The Tribunal would foster greater consistency in decisions and concentrate adjudicative expertise. However, the Panel believes that the securities regulator should retain jurisdiction over certain decisions, such as discretionary exemptions from securities regulations and rules. The securities regulator has the policy expertise and the quick response capability to properly address these matters in a more timely fashion.

Investor Complaint Service. Investors have access to a number of mechanisms to address the error or wrongdoings of market participants. However, the number of organizations, the multi-step processes, and the lack of uniformity across Canada often prevents investors from resolving disputes in a satisfactory fashion. The Report recommended the establishment of a dedicated service to address the lack of information, guidance, and support for investors with respect to complaint-handling and redress. The Panel envisions that this service would disseminate information and be provided by a securities regulator or another regulatory entity.

Independent Investor Panel and Dedicated Investor Issues Group. The Panel recommended the establishment of an independent investor panel and an investor issues group to advocate on behalf of investors.

Small Reporting Issuer Panel: The small reporting issuer panel would advise the commission of the impact of regulatory or policy initiatives on small reporting issuers.

Transition Path

Stage One: After the federal government announces its intention to establish a national Act and the Panel’s proposed regulatory structure, a transition and planning team (the “Team”) would be created to support intergovernmental negotiations, oversee the transition to a federal regulatory system and the planning for the Commission and the Tribunal. The Team would also negotiate memorandum of understanding with participating provinces to coordinate the national regime and oversee the preparation of the Act for introduction in Parliament. If unanimity cannot be reached among the provinces, the Act would include provisions allowing for voluntary provincial participation and limiting the application of the Act to participating jurisdictions. The Panel also recommends an opt-in procedure if an insufficient number of provinces do not participate, which would allow market participants not based in a participating province to be granted the right to opt into the national securities regime. It is expected that the first stage would be approximately one year in length.

Stage Two: The second stage of the transition involves the establishment of the Nominating Committee, the Council, the Commission, the Board and the Tribunal. Existing rules and regulations of the participating provinces would be adopted under the Act or redrafted into federal rules or regulations. The Panel anticipates that the Act and any ancillary rules and regulations would not come into force until after a period of time to allow for the establishment of the Commission and the Tribunal. It is expected that the second stage would be approximately two years in length. 3