The Ministers of Finance of British Columbia, Ontario and Canada have agreed to establish a cooperative capital markets regulatory system and have invited all provinces and territories to participate in the cooperative system.

Establishing a Cooperative System

The cooperative system will have a single capital markets regulator (the "CMR") administering provincial and federal legislation and a single set of regulations designed to protect investors, support efficient capital markets and manage systemic risk. The CMR will be responsible for policy development and regulation-making, regulatory operations, enforcement and will have a separate and independent adjudicative tribunal.

Key elements of the cooperative system include:

  • A uniform Act adopted by each participating province and territory covering all areas that provincial securities legislation currently addresses.
  • A complementary federal Act that will address criminal matters and matters relating to systemic risk in national capital markets and national data collection.
  • The CMR will administer both the provincial and federal Acts under authority delegated by each participating jurisdiction.
  • A single, simplified fee structure will be designed to allow the self-funding of the CMR and will not impose unnecessary or disproportionate costs on market participants.
  • The federal government will provide transitional funding to those provinces and territories that will lose net revenue as a result of transitioning to the cooperative system.
  • The CMR will have an executive head office located in Toronto and a regulatory office in every participating province.

The New Federal Legislation

The new federal Act will be "platform" in nature. Rather than containing detailed provisions, the federal legislation will delegate to the CMR authority to:

  • make regulations of national application (including in non-participating jurisdictions) related to systemic risk in national capital markets and national data collection;
  • make orders regarding practices determined by the CMR to give rise to systemic risk in national capital markets; and
  • exercise national emergency powers related to systemic risk in national capital markets and national data collection.

The CMR's regulation-making authority regarding systemic risk would for example include the authority to gather information to identify and monitor warning signs of emerging systemic risks to the financial system originating in the national capital markets. The federal legislation would delegate to the CMR national emergency powers in the event of a financial crisis to address an imminent threat to the stability of the national capital markets.

Details of the criminal aspects of the new federal legislation have not yet been disclosed.

Expected Timing

The implementation of the cooperative system is expected to occur in several phases, and the federal and participating provincial governments have agreed to use their best efforts to achieve the following timeline:

  • By January 31, 2014, the execution of a Memorandum of Agreement by each of the participating jurisdictions setting out the terms and conditions of the cooperative system (to which draft cooperative legislation will be attached).
  • By March 31, 2014, the publication of the initial draft regulations of the cooperative legislation for public comment.
  • On or before May 30, 2014, the execution of an agreement by each of the participating jurisdictions setting out the terms and conditions for the integration of their securities regulatory body into the CMR (which may differ as between participating jurisdictions to accommodate their distinctive circumstances).
  • By December 31, 2014, the enactment of provincial legislation by each provincial participating jurisdiction and the enactment of the complementary federal legislation by Parliament.

Based on this timeline, the federal and provincial governments expect the CMR to be operational by July 1, 2015.

Not a 14th Regulator

This cooperative approach wards off any criticism that the federal government's initiative would do little more than add a 14th securities regulator to an already over-burdened regulatory system. It also reflects a change in the government strategy from one involving bi-lateral negotiations province by province to one that can best be summarized as "if we build it, they will come".

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