Important Developments Toward Reform of Canada’s Securities Regulatory Regime

The Council of Ministers of the jurisdictions participating in the development of the Cooperative Capital Markets Regulatory System (CCMR) announced last week on April 16, 2015 important developments toward the reform of Canada’s capital markets regulatory regime. In a largely symbolic move, Yukon executed the Memorandum of Agreement Regarding the Cooperative Capital Markets Regulatory System, and joins the governments of Canada, Ontario, British Columbia, Saskatchewan and New Brunswick in this largely provincially-led initiative. The Memorandum of Agreement was amended to accommodate the addition of the Canadian territories to the Cooperative system, and now provides for the maintenance of an office of the Capital Markets Regulatory Authority (the “Authority”) in each territory. In addition, the Ministers announced the appointment of members of the nominating committee that will recommend candidates for the initial board of directors of the Authority, and indicated that the complete draft legislative regime – including draft initial regulations – will be made available for comment in the summer of 2015. These developments follow the submission of more than 60 comment letters from interested parties on the Memorandum of Agreement itself and on the two pieces of draft consultation legislation that CCMR released on September 8, 2014, namely, the provincial Capital Markets Act and the federal Capital Markets Stability Act.

The goal of the CCMR is to eliminate the inefficiencies that are endemic to Canada’s current system of 13 separate securities agencies. The CCMR reflects the federal government’s response to the 2011 Supreme Court of Canada decision in Reference Re Securities Act, 2011 SCC 66, which held that the federal government’s first attempt to enact federal legislation to establish a national securities regulator was unconstitutional. As a result, rather than being pursued as a federal initiative, the provinces have largely taken the lead with the support of the federal government. To date, the provinces that have signed on to the CCMR represent approximately three-quarters of Canadian listed companies, with a market capitalization of almost 53%. However, staunch opposition to the Cooperative System remains, as Quebec and Alberta have continued to propose their own provincially-based models for securities regulatory reform.

On September 8, 2014, the Ministers released consultation drafts of uniform provincial and territorial capital markets legislation (the Capital Markets Act) and complementary federal legislation (the Capital Markets Stability Act), though regulations have yet to be released. As the participating jurisdictions describe, the purpose of the provincial and territorial legislation is to modernize and harmonize existing provincial and territorial securities legislation (as opposed to 13 divergent legislative regimes), while the complementary federal legislation empowers the Authority to collect data and address capital markets-related systemic risk on a national basis.

Osler was among the law firms to provide comment on the draft legislation. In our comment letter, we applauded the efforts of the CCMR, including the proposed approach to selecting the Authority’s board of directors through a nominating committee. In addition, we encouraged the participating jurisdictions to reconsider any changes to the status quo that were not necessary to achieve harmonization among the participating jurisdictions, and to provide as much clarity and engagement as possible through the process.

Significantly, Osler and other stakeholders also urged the participating jurisdictions to provide an additional comment period on the two pieces of legislation once the detailed proposed regulations have been released, so that the entire regime can be considered and evaluated as a whole. The participating jurisdictions responded to this request by announcing that they intend to release during the summer of 2015 updated consultation draft provincial and federal capital markets legislation, together with draft initial regulations, for public comment over a 120-day period.

The announcement of a professional-class Board nominating committee signals significant momentum for the Cooperative regulator initiative. The impending release of advanced draft legislation – together with detailed regulations – this summer further suggests that a harmonized securities regulatory regime is closer to being a reality than ever before. Market participants are best advised to continue to keep current on these evolving developments.

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Lawrence E. Ritchie

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