A potential national securities regulator raises concerns

On March 22, the Supreme Court of Canada will hear the appeal on the Quebec government’s reference regarding the attempt to create a voluntary new pan-Canadian securities regulatory body.

A potential national securities regulator raises concerns
James Boyle says he hopes the Supreme Court of Canada will close the remaining avenues the federal government used to create the Cooperative Capital Markets Regulatory System.

On March 22, the Supreme Court of Canada will hear the appeal on the Quebec government’s reference regarding the attempt to create a voluntary new pan-Canadian securities regulatory body. Securities lawyers are expressing skepticism about the plan — even those who were initially in favour of a single national regulator.

“When we started this process, we were keen to have one common securities regulator across Canada,” says Barbara Hendrickson, CEO and founder of BAX Securities Law.

However, her views have shifted.

“At one time, everyone thought we really needed it,” says Hendrickson.

“Now that we look at the proposals, there’s a lack of consistency of opinion as to if this is going to be an improvement or not.”

Hendrickson, a past co-chairperson of the Securities Law Committee of the Business Law section of the Canadian Bar Association, had made submissions asking for a common securities regulator going back as far as 2007.

She says the idea of a common regulator originally appealed to people because of the uniformity of legislation and the belief that a common regulator would be cheaper than the existing system, which uses a “passport” system for businesses that do business across different provinces in order to ensure that they are in compliance with the various different provincial securities laws.

However, Hendrickson now has concerns with the problems she sees in the proposed federal and provincial legislation to create the single regulator, particularly because provinces will be able to get local rules exempted from the national law.

“[The proposed legislation] looks like it’s going to be pretty complicated and like there’s the potential for carve-outs within the participants, and that doesn’t even bring into consideration the jurisdictions that haven’t opted in,” she says.

The federal government launched the Cooperative Capital Markets Regulatory System in 2014, along with draft legislation and regulations to create a common securities regulator.

So far, Ontario, British Columbia, Saskatchewan, New Brunswick, Prince Edward Island and the Yukon have opted into the CCMR framework.

In July of 2015, the Capital Markets Authority Implementation Organization was incorporated on behalf of the participating jurisdictions as an interim body to assist with the transition to the CCMR.

James Boyle, founding partner of Boyle & Co. LLP in Toronto, says many lawyers think that the current regulatory regime works the way it is and that lawyers and their clients can deal with inconsistencies in regulations across Canada the way they are.

He says that from a market-compliance perspective, more regulators make more sense, compared with a single one.

Boyle says those who are supporting a single regulator are institutions such as banks.

“Nothing about [a single regulator] makes any sense from the point of view of entrepreneurs, small business people, business generally in Canada,” says Boyle.

He is particularly concerned that the rule-making authority granted to the provincial regulators has no oversight from their respective governments, which is why a single regulator is even more concerning to him.

“It’s the creation of an unaccountable regulatory body that’s going to make its own rules, enforce its own rules and is self-funding,” says Boyle. “That’s just fundamentally inconsistent with the concept of how capitalism works.”

In 2011, the Supreme Court of Canada ruled that the federal government could not unilaterally impose a national securities regulator given that securities regulation belonged to the provinces.

In the March 22 hearing, the SCC will weigh in on the Quebec Court of Appeal decision that the Constitution does not authorize the regulation in the proposed CCMR and that the most recent version of the draft implementation legislation does not exceed the authority of Parliament, with the exception of three clauses contained within it.

Boyle says he hopes that the Supreme Court of Canada realizes that its 2011 decision was correct and that it will close the remaining avenues that the federal government used to create the CCMR.

Hendrickson says the question arising from the 2011 Supreme Court of Canada judgment on this issue was what jurisdiction the federal government does have in this area.

“The federal government has carved out this space in the area of systemic risk, and I know having participated in many submissions on this legislation, it’s not entirely clear what that means in the context of the current securities regime,” says Hendrickson.

She says that when she deals with clients both inside and outside of Canada, the 13 jurisdictions within the country do mean that those clients limit their activities to a smaller number of provinces — usually those with the bigger population.

“Fundamentally, we need a common securities regulator, but the Supreme Court of Canada has said that we can’t really do that,” says Hendrickson.

She says the differences have created regional markets with different initiatives and investor bases.

The CCMR proposal is that the existing securities offices in the provinces would remain in place and not simply be run out of Ontario.

“There’s a lot of uncertainty in the proposed CCMR because not all of the provinces are in it anyway,” she says. “That’s the uncertainty.”

However, Boyle says there’s no indication that anything is wrong with securities regulation in Canada and that the current “passport” system that allows businesses to operate across provincial lines works when all of the regulators co-operate.

“The passport system is a regulatory market response,” says Boyle. “[The] passport system is based on trust and confidence, which we expect from all our securities regulators.”

Kenneth Dekker, partner with Affleck Greene McMurtry LLP in Toronto, says that the current patchwork system benefits litigators like him.

He also sees the advantages of what a single regulator would provide.

“A level of confusion in the regulations that apply across the country is a bit of a make-work project for litigators like me,” says Dekker.

“The real interest has to be in lawyers who are servicing public companies and doing public offerings and trying to meet their disclosure obligations.”

Dekker says that a common regulator would benefit lawyers in Toronto, where the hub of the CCMR would be located.

“It will make things easier for me and cheaper for my clients because then we have to figure out just one set of regulations instead of several potentially,” says Dekker.

He says he’s concerned about the “reputational damage” of Canada in having 13 separate jurisdictions across the country dealing with securities regulation.

“It’s perplexing to anyone outside of Canada that a province the size of Prince Edward Island, with the same population as Sault Ste. Marie, has its own securities regulator and regulations,” he says.

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