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Debate Continues Regarding Proposed Cooperative Capital Markets Regulatory System

Author(s): Jeremy Fraiberg, Shawn Irving, Lawrence E. Ritchie, Robert M. Yalden, Noralee Bradley

July 25, 2014

On July 9, 2014, on what Finance Minister Joe Oliver called “a landmark day” for reforming Canada’s capital markets regulatory regime, the federal government announced that Saskatchewan and New Brunswick had agreed to join Canada, British Columbia and Ontario in the Cooperative Capital Markets Regulatory System (CCMR). The announcement follows on the September 19, 2013 agreement-in-principle between the governments of Canada, British Columbia and Ontario to jointly establish a single operationally independent cooperative regulator to administer provincial and federal capital markets legislation. With the addition of Saskatchewan and New Brunswick, the federal government can now boast that four provinces, representing approximately three-quarters of Canadian listed companies with a market capitalization of almost 53 percent, have agreed to sign on to the initiative. At the same time, the federal government renewed its invitation to all other provinces and territories to participate.

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 a 2011 Supreme Court of Canada decision, which held that the federal government’s first attempt to enact federal legislation to establish a national securities regulator was unconstitutional.

The principal components of the CCMR, as first set out in the Agreement-in-Principle signed by the governments of Canada, British Columbia and Ontario in September 2013, include:

  • Uniform provincial and territorial legislation: a uniform act of each provincial or territorial participating jurisdiction addressing all matters of provincial or territorial jurisdiction in the regulation of capital markets (the “provincial legislation”).
  • Complementary federal legislation: complementary federal legislation applying throughout Canada addressing criminal matters and matters relating to systemic risk in national capital markets and national data collection (together with the provincial legislation, the “Cooperative Legislation”).
  • Single Regulator: a single operationally independent cooperative capital markets regulator, with an expert board of directors, a regulatory division and an adjudicative tribunal, that administers the provincial and federal legislation and a single set of regulations under authority delegated by the participating jurisdictions. There would be one chief regulator that would serve as the chief executive officer of the regulatory division of the CCMR and whose responsibilities would include recommending the deputy chief regulators to the board (initially it was agreed that the deputy chief regulators would be based in each of Ontario and British Columbia, as well as Québec and Alberta should those jurisdictions choose to participate).
  • Council of Ministers: a council comprising the Ministers responsible for capital markets regulation in each provincial participating jurisdiction and the Minister of Finance of Canada that oversees the CCMR, that is accountable to the participating jurisdictions for the exercise of the CCMR’s regulatory powers and to which the board of directors is accountable for the exercise of its regulatory powers.
  • Adjudicative Tribunal: an adjudicative tribunal that would have sufficient members to conduct hearings in English and French across Canada. All of the members would be independent and the tribunal, as a whole, would possess the requisite capital markets and adjudicative expertise.
  • Offices: regulatory offices in every province that is a participating jurisdiction, providing the same range of services that are currently provided in those offices. The executive head office would be located in Toronto.

In connection with Saskatchewan and New Brunswick deciding to participate, the parties have agreed to certain enhancements to the CCMR through an Amended Agreement-in-Principle. These include:

  • There will be two additional regional deputy chief regulators representing capital markets jurisdictions in each of Western and Eastern Canada. Initially they will be located in Saskatchewan and New Brunswick and serve a term of five years. These would be in addition to the deputy chief regulator based in each of British Columbia and Ontario, as well as Alberta and Québec should they choose to participate.
  • Each regulatory office would be led by a director with the responsibility to carry out the office’s regulatory functions and identify local issues for their respective Deputy Chief Regulator’s consideration in the development and application of national policies.
  • Fundamental changes to the CCMR will require unanimous approval of the proposed Council of Ministers during the initial three-year period after the date on which the Capital Markets Regulatory Authority commences operations, and approval of at least two-thirds of the Council of Ministers and all major capital markets jurisdictions thereafter.
  • The regulator will consider requests to accommodate provincial economic development initiatives, provided they do not adversely affect the fundamental principles of the CCMR or affect markets participants in other jurisdictions.

The parties have agreed to take all actions necessary to give effect to the Amended Agreement-in-Principle, including entering into services agreements for the interim provision of services to the CCMR by an integrated financial regulatory/consumer protection authority in the participating jurisdictions to assist in administering the Cooperative Legislation and delivering regulatory services for a period of three years. 

The parties announced that they expect to issue initial draft regulations by December 19, 2014 (revised from March 31, 2014) and enact provincial and complementary federal legislation by June 30, 2015 (revised from December 31, 2014), with an expectation that the CCMR will be operational before the fall of 2015 (revised from July 1, 2015).

Reaction to the federal government’s announcement was swift and predictable: almost immediately those who had previously expressed support for the initiative reiterated their support. Leading industry associations, such as the Investment Industry Association of Canada, the Canadian Council of Chief Executives, the Canadian Bankers Association and the Portfolio Management Association of Canada, lauded the announcement and encouraged other provinces to seriously consider participation. The Hon. John Manley, President and CEO of the Canadian Council of Chief Executives, suggested that Canada’s attractiveness as a destination for business investment would be strengthened by “modernizing the existing patchwork of regulators.”

Québec and Alberta, on the other hand, dismissed the announcement, reiterating their preference for a provincially led approach.

The reaction from Québec and Alberta should come as no surprise. Québec had already indicated an intention to challenge the proposed legislation in Canada. During the past year, Alberta announced its own proposed model for securities regulatory reform, being a structure that would see the retention of provincial commissions and agencies, along with: (i) the creation of a national capital markets enforcement agency headquartered in Toronto to assist in the enforcement of criminal laws; (ii) a national systemic risk committee chaired by the federal government; (iii) the replacement of commission-based adjudicators by a national and independent adjudicative panel; and (iv) the Canadian Securities Administrators (CSA) to be overseen by a national Council of Ministers and associated administrative bodies.

The Ministers participating in the CCMR are emphasizing momentum, and have reiterated their invitation for other jurisdictions to join the initiative. In the meantime, securities regulators across Canada continue to do business within the existing structure, principally through their active participation in the CSA (a point emphasized recently by the British Columbia Securities Commission in its 2013/2014 Annual Report [released on July 23, 2014]). However, the Chairman and CEO of the Alberta Securities Commission (ASC) pointed out in the ASC’s 2014 Annual Report (released to the public on July 21, 2014) that the ongoing debate over the structure of reform and contest for national control is making harmonization “an even greater challenge in an environment where securities laws are seen to be appropriate for differing purposes.”

It is apparent that reform and structural transformation is inevitable. Market participants are best advised to continue to keep current on these evolving developments.

Lawrence Ritchie, the chair of Osler’s Risk Management and Crisis Response Group, previously served as a Vice-Chair of the Ontario Securities Commission and Executive Vice-President and Senior Policy Advisor to the Canadian Securities Transition Office, the statutory body established to assist the federal government in its national securities regulatory initiative.  


Authored by:  Jeremy Fraiberg, Robert M. Yalden, Noralee Bradley, Shawn Irving