Federal Finance Minister Jim Flaherty announced on September 19, 2013 that a deal between the federal government, Ontario and British Columbia has been struck to create a single cooperative national capital markets regulatory system whereby the federal government and those provinces that participate will delegate their authority over capital markets to a single cooperative capital markets regulator. All provinces and territories are being invited to join the proposed cooperative system. Ontario, B.C. and the federal government are currently targeting that the new regulator will be in operation by July 1, 2015.

Provincial Opposition

As has been well publicized, this is not the federal government’s first attempt at creating a national system for securities regulation in Canada. It was only in December 2011 that the Supreme Court of Canada (SCC) ruled that the federal government’s proposed act to create a national securities regulator was beyond its powers and therefore unconstitutional (as we discussed in our previous Davis LLP bulletins here and here).

When the federal government previously proposed a national securities regulator, both Alberta and Québec submitted references to their respective Courts of Appeal which successfully challenged the constitutionality of the proposed legislation. It seems that the new proposed cooperative system, which appears to have come as a surprise to many provinces, has not won over the federal government’s old foes on this topic.

Québec’s Minister of Finance Nicolas Marceau has indicated in an initial press release that the Québec government is against the federal government seeking to do “...indirectly what it cannot achieve directly". Québec’s opposition stems from its view that the federal government is trying to move jobs away from Montreal to Toronto, as Mr. Marceau stated that “The federal government's true objective is clear, i.e. to transfer the 154,000 jobs in the Québec financial sector to Toronto". Québec’s Minister for Canadian Intergovernmental Affairs Alexandre Cloutier emphasized that once the draft legislation is released, Québec will not hesitate to challenge its constitutionality in court, if it has to. In a subsequent press release, Mr. Marceau stated “We do not have any interest in participating in a project that seeks to centralize in Toronto regulation of the financial sector.”

The response from Alberta’s Minister of Finance Doug Horner was only somewhat more muted. While he expressed surprise at the lack of provincial consultation, Horner noted he would “…need time to review it before understanding its full implications”. However, he emphasized that he would “…continue to protect Alberta’s interests and ensure that decisions affecting our province are made in Alberta.”

The Current Passport System

A substantial part of the Québec and Alberta Ministers’ objections to the proposed cooperative system is that Canada already has a highly harmonized and cooperative securities regulatory framework with the “passport system” and the many national and multilateral instruments and policies that have been developed by the Canadian Securities Administrators. The current passport system is a system of instruments and policies that were developed and adopted by all of the provinces and territories of Canada, except in certain circumstances, Ontario, with the goal of providing a single window of access to Canada’s capital markets for domestic and foreign issuers. It enables participants to clear a prospectus, obtain a discretionary exemption and to register as a dealer or adviser, by obtaining a decision from the securities regulator in their home province or territory and have that decision apply in all other jurisdictions. Opponents to the creation of a new national regulator point to the passport system as already providing a suitable, cooperative national system.

To that end, the “Provincial-Territorial Ministers Responsible for Securities Regulation” put out a Communiqué on September 24, 2013 responding to the proposed cooperative system, stating that “Except for Québec, which has already rejected the federal initiative, Council members will conduct their own due diligence regarding the best path forward” and that Council Ministers have agreed to continue to develop a Memorandum of Agreement to improve Canada’s current securities regulatory framework.

Federal Persistence

The SCC did not completely shut the door to a national securities regulator in its 2011 decision. As was noted in the judgement, “…a cooperative approach that permits a scheme that recognizes the essentially provincial nature of securities regulation while allowing Parliament to deal with genuinely national concerns remains available.”

The federal government obviously took encouragement from this part of the decision and it is apparent that the new proposed regime is carefully and deliberately designed to address the objections raised in the SCC’s 2011 ruling. The federal government’s continuing efforts in this area have been telegraphed by the fact that The Canadian Securities Transition Office, which was set up when the federal government first proposed the national securities regulator, had its funding extended in the 2013 Federal Budget. The 2013 Federal Budget stated that “The Government’s preferred approach to improving the regulation of Canada’s capital markets is through a common securities regulator established cooperatively with provinces and territories.” In addition, the 2013 Budget noted that “…the Government has consulted with provinces and territories on establishing a common securities regulator on a cooperative basis as outlined by the Court.”

The continuing push in this area appears in some part to come from Mr. Flaherty himself. He has indicated that following the 2011 Supreme Court ruling, “The government, some of my colleagues, had doubts about the wisdom of persisting on this subject.” He then reportedly added “But hope springs eternal.”

Key Features of the Proposed Cooperative System

Some of the key features of the proposed cooperative system are as follows:

Offices: Although the head office will be located in Toronto, the new regulator will have offices in each participating province with staff, expertise and resources commensurate with the needs of that jurisdiction. Regulatory offices will provide the same range of services currently provided in the applicable jurisdiction.

New Legislation: To create the proposed cooperative system, the participating provinces and territories will each adopt a uniform act and regulations which will cover all the areas that current provincial securities legislation covers. The federal government will also adopt a complementary act at the federal level to address criminal matters, matters relating to national systematic risks and national data collection. The new regulator will administer both the provincial and federal acts.

Fees: The new regulator will introduce a single, simplified fee structure designed to allow it to be self-funding, without imposing unnecessary costs on market participants. The federal government will also provide transitional funding to provinces and territories that lose net revenue as a result of transitioning to the proposed cooperative system.

Oversight: Oversight of the new regulator will be through an expert board of directors appointed by the Council of Ministers. The Council of Ministers will in turn be made up of the Ministers responsible for capital markets regulation in the provincial participating jurisdictions and the Minister of Finance of Canada. The Council of Ministers would also be responsible for, among other matters:

  • approving new regulations proposed by the board of directors (although the initial regulations would be published in each participating jurisdiction for comment);
  • proposing amendments to provincial legislation and the complementary federal legislation (although the new legislation would be agreed to in advance of establishing the proposed cooperative system); and
  • requesting the board of directors to consider making specific regulations.

Tribunal: The new regulator would have an adjudicative division consisting of an independent adjudicative tribunal with the ability to conduct hearings across Canada.

Mr. Flaherty has also reportedly indicated that the new regulator will have some jurisdiction over the derivatives market in Québec as part of its goal to oversee matters relating to national systemic risks. He stated that “Assuming we fulfill our constitutional responsibility – which we will – then we will have to keep an eye on the derivatives market in Québec”.

Moving Forward

The federal government, Ontario and B.C. have agreed to use their best efforts to meet various implementation milestones, including:

  • execution of a Memorandum of Agreement by each participating jurisdiction, setting out the terms and conditions of the new system with the new draft legislation attached, by January 31, 2014;
  • publication of draft regulations for public comment by March 31, 2014;
  • execution of an agreement by each participating jurisdiction setting out the terms and conditions for integration by May 30, 2014; and
  • the enacting of the new legislation by each participating jurisdiction by December 31, 2014.


As can be seen by the proposed timeline, the federal government, Ontario and B.C. are optimistic about the potential success of the proposed cooperative system. It is an interesting question, however, as to which other provinces besides B.C. and Ontario will participate in the proposed cooperative system. Certainly Alberta and Québec, both of whom have an important share of the capital markets in Canada, do not appear likely to join the cooperative system, at least not initially. In any event, even without these two key players, if the proposed cooperative system moves forward and is successfully established, it will have a profound impact on the securities regulatory landscape across Canada.