On July 9, 2014, the federal Canadian government and the Saskatchewan and New Brunswick provincial governments entered into an amended agreement in principle (the Agreement) to join the Cooperative Capital Markets Regulatory System (the Cooperative System). This amends the September 19, 2013, agreement in principle among the federal government and the British Columbia and Ontario provincial governments to establish the Cooperative System (see our September 2013 Blakes Bulletin: Canadian Federal Government, Ontario and British Columbia Announce Cooperative Capital Markets System).

The Agreement reflects the 2011 decision of the Supreme Court of Canada that the federal government's previously proposed legislation establishing a national securities regulator was unconstitutional, as falling outside federal jurisdiction (see our December 2011 Blakes Bulletin: Supreme Court Finds Against National Securities Regulator). The Agreement provides that each jurisdiction is acting within its constitutional jurisdiction and is not surrendering its own jurisdiction over the matters in the Agreement. The Agreement contemplates that one single regulator would administer provincial and federal legislation under authority delegated by each participating jurisdiction.

The Agreement includes certain key changes from the original agreement in principle including:

  • The addition of two deputy chief regulators to accommodate the participation of smaller jurisdictions: one representing Saskatchewan, Manitoba, the Northwest Territories, Nunavut and the Yukon, and another representing New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador (to the extent they are participating jurisdictions). These would be in addition to deputy chief regulators representing each of British Columbia, Ontario, Alberta and Quebec (to the extent they are participating jurisdictions). The additional deputy chief regulators will initially be located in Saskatchewan and New Brunswick and will serve a term of five years.
  • The nominating committees for the expert board of directors and independent adjudicative tribunal will include representation from both major and other participating jurisdictions.
  • Fundamental changes to the Cooperative System will require unanimous approval of the Council of Ministers during the initial three-year period after the Cooperative System commences operations and, thereafter, will require approval of at least two-thirds of the Council of Ministers, the minister from each major capital markets jurisdiction and the Minister of Finance of Canada. 
  • A transition plan will be developed to integrate existing securities regulatory entities into the Cooperative System.
  • Each regulatory office (one of which will be located in each province) will be managed by a director who will coordinate the delivery of regulatory functions to local market participants and investors and will ensure that the deputy chief regulator is aware of local interests in the development and application of national policy.
  • The regulator will consider requests from a participating jurisdiction to accommodate provincial economic development initiatives and will approve the requests provided they do not adversely affect the fundamental principles of the Cooperative System, affect market participants in other jurisdictions or involve other matters of national importance.

The federal government also entered into transition funding agreements with the Saskatchewan and New Brunswick governments. Under the Agreement, the parties have agreed to use their best efforts to publish the initial draft of the cooperative federal and provincial legislation for public comment by December 19, 2014, enact such legislation by June 30, 2015, and have the Cooperative System operational in the fall of 2015.

The federal Finance Minister described the Agreement as a “major step towards a single regulator.” However, six provinces (Alberta, Manitoba, Quebec, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador) and all three territories have not agreed to the Cooperative System. The major capital markets of Alberta and Quebec, in particular, remain strongly opposed to the Cooperative System, with the Alberta Finance Minister stating that “This will leave Canada with a more fractured system than the one we have today. We do not believe that four provinces constitute a critical mass of support for a change of this magnitude.”