Canada: The Final Report of the Crawford Panel on a Single Canadian Securities Regulator

On June 7, 2006, the Crawford Panel on a Single Canadian Securities Regulator (the "Panel"), chaired by Purdy Crawford (the "Chairman"), released its final report entitled the Blueprint for a Canadian Securities Commission (the "Report"). Following the release of the Panel's discussion paper on December 8, 2005, the Panel conducted an extensive consultation process with leading securities industry participants and government representatives. Based on the feedback provided from these meetings, the Panel expressed confidence in the existence of a general consensus among the majority of key securities market participants with respect to several fundamental issues, most notably, the eventual need for a single Canadian securities regulator ("Proposed Regulator").

The Canadian securities regulatory environment is unusual amongst developed countries. Each of the 13 provinces and territories of Canada has its own body of securities legislation and its own securities regulator. Canada is reportedly one of only two participant countries of the International Organization of Securities Commissions without a national securities regulator; a distinction dubiously shared with Bosnia-Herzegovina.

The Panel members expressed their views with candour. In the press conference held to explain the Panel's findings, the Chairman stated with respect to the enforcement of investor rights across Canada that "domestic and foreign investors perceive our current regulatory system as an embarrassment." Similarly, Panel member Claude Lamoureux, President and CEO of the Ontario Teachers' Pension Plan, cited the trend of investors preferring to sue Canadian companies in American courts as an indication that the Canadian system is perceived to be inadequate to protect the rights of investors.

The reluctance to proceed with a single Canadian securities regulator has been attributed, in part, to a concern that Ontario would dominate such a regulator at the expense of the interests of other provinces and the perception that the incremental benefits of a single Canadian securities regulator would not sufficiently exceed those of a fully operational passport system. The Panel acknowledged the benefits achieved from the adoption of the passport system and encouraged Ontario to participate with the other signatory provinces. However, the Panel made it clear that the passport system should serve only as an interim step towards the adoption of the Proposed Regulator. The Panel asserted that the passport system does not adequately address certain fundamental flaws in the current regulatory system including duplication of tasks and other inefficiencies, weak enforcement capabilities and the perpetuation of the perception held by foreign investors of Canadian markets as fragmented and expensive.

Under the proposed system, jurisdiction over securities regulation would be shared equally between all of the provinces and territories ("Participating Jurisdictions"). In addition, the Report recommends the involvement of the federal government as a means of improving national resource coordination and to provide legitimacy to the Proposed Regulator. The most pertinent details of the proposed system are as follows:

• Government oversight of the Proposed Regulator and the proposed Canadian Securities Tribunal ("CST") is to be provided by a Council of Ministers ("Council") comprised of the minister responsible for securities regulation in each of the Participating Jurisdictions and the appropriate federal minister. The Proposed Regulator would be managed by an "Executive Management Team", led by the Chief Commissioner, that reports to a board of directors. The board of directors is, in turn, accountable to the Council.
• Governing power is equally distributed between the Participating Jurisdictions and the federal government with each Council member holding one vote on: the selection of the board of directors, adjudicators for the CST and the adoption of rules made by the Proposed Regulator.
• The Council will select candidates to sit as adjudicators and board members from a list prepared by a nominating committee comprised of one member appointed by each Participating Jurisdiction and the federal government. To further allay fears of a centrally dominated regulator, the head office will receive input from five regional "centres of excellence".
• The CST will conduct hearings and determine penalties for breaches of securities laws independently from the Proposed Regulator. Currently, most provincial securities regulators have responsibilities pertaining to policy-setting, rule-making, enforcement and adjudication. The performance of these multiple roles by the same regulator is frequently criticized for creating a perceived or potential conflict of interest.
• The Report recommends a common body of legislation to ensure that securities laws are consistently applied, interpreted and enforced across the country. The new securities legislation will rely to a greater extent on principles based regulation and will be drafted in less complex terms than the current legislation.

The Panel intentionally omitted drawing conclusions on certain potentially inflammatory issues including the location of the head office and centres of excellence and the appointment of the Chief Commissioner.

The Panel outlined certain steps for the provinces to take to begin the transition towards a single Canadian securities regulator, including a memorandum of understanding outlining transition protocols and the establishment of a task force to draft the consolidated legislation. In concluding the press conference the Chairman, speaking on behalf of the Panel, insisted that the Panel members would continue their efforts to establish the Proposed Regulator.

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