Canada: New Cooperative Capital Markets Regulator: How It Works (And Some Unresolved Issues)

On September 8, 2014, the Canadian government and the British Columbia, Ontario, Saskatchewan and New Brunswick governments entered into a memorandum of agreement (Agreement) formalizing the terms and conditions of the cooperative capital markets regulatory system (Cooperative System). For more information on this please see our September 2014 Blakes Bulletin: Cooperative Capital Markets Regulatory System Agreement and Draft Legislation Released. Consultation drafts of the uniform provincial capital markets legislation (Provincial Capital Markets Act (PCMA)) and complementary federal legislation (Capital Markets Stability Act (CMSA)) that are proposed for enactment were also released for public comment (Consultation Drafts).

Given the scope of the new proposed legislation at both the federal and provincial levels, Blakes is publishing a series of bulletins regarding various aspects of the proposed Cooperative System. This bulletin addresses the proposed structure and inter-provincial cooperation framework of the Cooperative System.


The Agreement reflects the Supreme Court of Canada's 2011 decision 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.

On October 9, 2014, the Prince Edward Island government signed the Agreement, joining the Canadian government and the British Columbia, Ontario, Saskatchewan and New Brunswick governments as participating jurisdictions (Participating Jurisdictions) under the Agreement.


The PCMA, which will be proposed for enactment by each participating province and territory, addresses matters of provincial or territorial jurisdiction in the regulation of capital markets and would replace existing Securities Acts in each of the participating provinces. The complementary federal CMSA addresses systemic risk in national capital markets, national data collection and criminal law matters. Both the PCMA and CMSA empower the Capital Markets Regulatory Authority (Authority) to administer the PCMAs of all of the Participating Jurisdictions and the federal CMSA, and to make regulations for carrying out the purposes of the legislation.

One significant difference from current legislation is the extent to which the PCMA takes a "platform approach" to capital markets regulation by setting out the fundamental provisions of capital markets law while leaving detailed requirements to be addressed in regulations. Certain provisions that are currently contained in provincial securities legislation have been omitted from the draft PCMA, presumably to be included in the regulations enacted by the Authority. This approach continues and accelerates the trend to delegate the development of securities legislation in the form of regulations to be enacted by the regulator as opposed to being contained in legislation passed by provincial legislatures. According to commentary released by the Government of Canada in connection with the Agreement, this approach is designed to promote regulatory flexibility, allowing the Authority to respond to market developments in a timely manner and appropriately tailor its regulatory treatment of various entities and activities.

The CMSA includes regulation-making authority in respect of national data collection and addressing systemic risk related to capital markets. Under the PCMA, however, the specific matters for regulation-making by the Authority are not provided for under the draft PCMA. The commentary states they will be developed in conjunction with the draft regulations. It is not clear why this important aspect of the Cooperative System is not addressed in the draft PCMA in respect of which comments are sought.

The process for making regulations (beyond the initial set of regulations) under the PCMA and CMSA is similar to that currently used by the Canadian Securities Administrators, and includes requirements for publication of proposals, mandatory notice and comment periods, and oversight by the Council of Ministers (Council), which is given authority to accept or reject regulations and is deemed to approve regulations if it does not respond within a specified period.

Under the Agreement, the Participating Jurisdictions have agreed to use their best efforts to publish draft regulations – which would replace all existing national securities administrator rules in the participating provinces – for public comment by December 19, 2014 and enact the PCMA and CMSA by June 30, 2015.


The Agreement sets out the principal components of the Cooperative System, including the PCMA, CMSA, Authority, Council, offices and fee structure. The Agreement contemplates that the Participating Jurisdictions will agree on legislation and other constating charter documents (collectively, CMRA Charter Documentation) that will set out the structure, responsibilities and powers of the Authority. CMRA Charter Documentation has not been released for comment.

Pursuant to the Agreement, the Authority will be a jointly established and operationally independent common regulator for the Cooperative System.

The Authority will be supervised by a board of directors (Board) composed of a minimum of nine and a maximum of 12 directors. The Board will be responsible for, among other things, supervising the management of the business and affairs of the Authority, appointing the chief regulator and exercising the Authority's power to make regulations.

The members of the Board will be appointed by the Council based on recommendations from a nominating committee. The Council will be composed of a minister from each of the Participating Jurisdictions and the minister of finance of Canada. In addition to appointing the members of the Board, the Council will be responsible for, among other things, proposing amendments to the Cooperative System legislation and approving regulations made by the Board.

The term "independent," which is used in the Agreement in respect of the Authority and the Board, as well as the Tribunal and nominating committees as described below, is not defined in the Agreement or the draft CMSA or PCMA. Presumably the definition of "independence" for these purposes will be set out in the CMRA Charter Documentation.


The Authority will have two principal divisions: a regulatory division and an adjudicative division.

The regulatory division will be responsible for the policy, regulatory operations, advisory services and enforcement functions of the Authority. The regulatory division will be led by the chief regulator who will serve as chief executive officer responsible for management of the business and affairs of the regulatory division. The regulatory division will have deputy chief regulators based in each of British Columbia and Ontario, as well as Alberta and Quebec in the event that they choose to participate in the Cooperative System. There will also be two regional deputy chief regulators to represent other Participating Jurisdictions initially based in Saskatchewan and New Brunswick. The chief regulator will be responsible for recommending the deputy chief regulators to the Board for approval. The regulatory division will also have an executive committee that will include the chief regulator and the deputy chief regulators. The executive committee will serve as the primary executive decision-making body for the regulatory division.

The adjudicative division will consist of an independent tribunal (Tribunal) led by the chief adjudicator and composed of independent adjudicators who will be appointed by the Council on the recommendation of a nominating committee. The Tribunal will operate independently of the regulatory division and will hold hearings across Canada.


The nominating committees for the Board and the Tribunal will be composed of (a) one member selected by each of the ministers from a major capital markets jurisdiction (Ontario, British Columbia and, if applicable, Alberta and Quebec) and the minister of finance of Canada, and an equal number of members selected by the Board (in the case of the nominating committee for the Board) or the Tribunal (in the case of the nominating committee for the Tribunal) from among its members, and (b) one member selected by the provincial and territorial Participating Jurisdictions that are not major capital markets jurisdictions (or, if there are more than five provincial and territorial Participating Jurisdictions that are not major capital markets jurisdictions, two members). Under the Agreement, the members of a nominating committee must be independent of the governments represented by the Council and possess appropriate qualifications and capital markets-related experience.


The Authority will have a regulatory office located in every participating province. Each regulatory office will be managed by a director who will be responsible for coordinating the delivery of regulatory functions that are responsive to the needs of local market participants and investors, and ensuring the deputy chief regulator responsible for the jurisdiction is aware of local issues for consideration in the development and application of policy.

The Authority will have an effective executive head office in Toronto. The chief regulator will be located in the executive head office along with a sufficient number of the executive management team and executive corporate staff to permit the executive head office to carry out its purposes.


The Authority will be funded through a single, simplified fee structure designed to allow for self-funding of the Authority. The fee structure is not set out in the draft CMSA or PCMA and presumably will be set out in the regulations. It will be interesting to see whether the fees currently paid by market participants such as reporting issuers and registrants will need to be increased to address the additional responsibilities of the Authority for national data collection, enforcement and addressing systematic risk, and the overlay of the Council, the Board and deputy chief regulators on the existing provincial securities commission structure. As well, it will be interesting to see how the fee structure addresses companies that are currently reporting issuers or registrants in less than all of the Participating Jurisdictions. The Government of Canada has also agreed to make payments to Participating Jurisdictions that will lose net revenue as a result of the transition to the Cooperative System.


The Agreement provides that the Authority will use its best efforts to negotiate and implement an interface mechanism with each non-participating jurisdiction such that the Cooperative System contemplated by the Agreement is, effectively, of national application. The CMSA also provides that the Authority, in fulfilling its mandate, must coordinate to the extent practicable its regulatory activities with those of other federal, provincial and foreign financial authorities so as to promote efficient capital markets, achieve effective regulation and avoid imposing an undue regulatory burden. Aside from certain provisions relating to enforcement and Council decision-making processes, there are no additional provisions in the Agreement or Consultation Drafts relating to the manner in which the Authority will co-operate with non-participating jurisdictions.

As well, the Consultation Drafts do not appear to address important transitional issues, such as how existing reporting issuers or registrants in one or more of the Participating Jurisdictions will become reporting issuers or registrants under the new legislation, or whether existing reporting issuers or registrants in less than all of the Participating Jurisdictions will become reporting issuers under all of the Participating Jurisdictions under the new legislation.


Comments on the Consultation Drafts may be submitted until November 7, 2014. Given the breadth of these two significant pieces of legislation, one at the federal level with many novel provisions and one at the provincial level that will replace existing securities legislation and provide the legal framework for all securities regulation in the four provinces, this appears to be an ambitious deadline for comments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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