On September 19, 2013, the federal government of Canada and the provincial governments of British Columbia and Ontario (the Participating Governments) signed an “Agreement in Principle to Move Towards a Cooperative Capital Markets Regulatory System” (AIP). The AIP contemplates a timeline that will see a Cooperative Capital Markets Regulator (CMR) established and operational in British Columbia and Ontario (together with any other province that chooses to join) by July 1, 2015. As a result, the participating provinces will no longer have provincial securities regulators. Instead, one regulator, the CMR, will oversee uniform provincial securities legislation in those provinces as well as federal systemic risk legislation. The Participating Governments have expressed their hope that other provincial governments will agree to join the CMR on a cooperative basis. While this initiative is in some important respects similar to the initiative that the federal government launched in 2010 to establish a national securities regulator for Canada, a significant difference is that the latest initiative is provincially driven and is intended to be a cooperative venture among participating provinces.
Principal Components of the Cooperative System
The principal components of the cooperative system include the following:
Uniform provincial and territorial legislation. Rather than each participating jurisdiction maintaining distinct securities legislation, one uniform act will cover all matters relevant to provincial/territorial jurisdiction over the regulation of capital markets. This legislation will be adopted by each provincial/territorial legislature that chooses to participate.
Complementary federal legislation. Complementary federal legislation will be adopted that will apply throughout Canada. This legislation will deal with criminal matters, matters relating to systemic risk in national capital markets and national data collection. It is important to note that the CMR will administer this new federal legislation in all provinces and territories, regardless of whether a province has chosen to join the CMR.
Regulator. A single operationally independent cooperative capital markets regulator (the CMR), with an expert board of directors, a regulatory division and an adjudicative tribunal, will be responsible for administering provincial/territorial and federal legislation and a single set of regulations under authority delegated by the participating jurisdictions. The CMR will be responsible for regulatory, enforcement and adjudicative functions; will have the authority to identify and manage systemic risk; and will represent Canada internationally in matters of capital markets regulation.
Council of Ministers. A Council of Ministers will be created, comprising the federal Minister of Finance and the ministers responsible for capital markets regulation in each participating provincial/territorial jurisdiction. The Council of Ministers will oversee the CMR, will be accountable to participating jurisdictions for the exercise of the CMR’s regulatory powers and will in turn be the body to which the board of directors of the CMR is accountable for the exercise of its regulatory powers.
Offices. Every province/territory that is a participating jurisdiction will have regulatory offices that will provide the same range of services that are currently provided in those offices.
Fees. There will be a single, simplified fee structure that is designed to allow for self-funding of the CMR and that does not impose unnecessary or disproportionate costs on market participants.
The CMR’s Regulatory Division
The CMR will comprise two divisions: a regulatory division and an adjudicative tribunal. The regulatory division will be headed by the chief regulator who will function as the chief executive officer of that division and report to the CMR’s board of directors (discussed below). This division will be responsible for the CMR’s policy role, its regulatory operations, as well as its advisory services and enforcement functions. The head office will be located in Toronto. Deputy chief regulators will be located in the regulatory office of any major capital markets jurisdiction participating in the CMR (being any jurisdiction that represents at least 10% of the national gross domestic product derived from financial services and, therefore initially, being British Columbia and Ontario). Local offices will continue to be located in each participating jurisdiction and will continue to provide the range of services that they do today.
The CMR’s Adjudicative Division
The adjudicative division will consist of an independent adjudicative tribunal, led by the chief adjudicator. In order to ensure continued policy expertise by tribunal members, the AIP also contemplates the formation of a regulatory policy forum for consultation on policy issues; the forum would consist of all members of the executive committee of the regulatory division, all members of the adjudicative tribunal and such other participants as may be appropriate. The forum would serve to facilitate discussion among the CMR’s regulators and adjudicators about significant policy issues.
The chief regulator will report to, and be appointed by, the CMR’s board of directors. Board members will be appointed by the Council of Ministers, on the basis of recommendations from the Council’s nominating committee. The board members are all to be independent and to be broadly representative of the regions of Canada. The Council of Ministers will also have certain voting and veto rights with respect to new legislation developed by the CMR.
Transition and Implementation
The AIP sets forth milestones to implement the CMR as follows:
On or before January 31, 2014, the execution of a Memorandum of Agreement by each participating jurisdiction, setting out the terms and conditions of the CMR (to which the draft cooperative legislation will be attached);
On or before March 31, 2014, the publication of the initial draft regulations of the cooperative legislation for public comment;
On or before May 30, 2014, the execution of an agreement by each participating jurisdiction, setting out the terms and conditions for the integration of its securities regulatory body into the CMR; and
On or before December 31, 2014, the enactment of provincial/territorial legislation by each participating jurisdiction and the enactment of complementary federal legislation by Parliament.
On the basis of this timeline, the parties to the AIP expect the CMR to be operational by July 1, 2015.