Canada: New Capital Markets Regulator: Extent Of Consultation And CMA Provisions Remain Of Concern

Comments on the revised consultation draft of the provincial/territorial Capital Markets Act (CMA) and the draft initial regulations (Initial Regulations and, together with the CMA, the Consultation Drafts) for the proposed Cooperative Capital Markets Regulatory System (Cooperative System), to be administered by the new Capital Markets Authority (Authority), indicate that capital markets stakeholders continue to have major concerns about the adequacy of the consultation process, the interface between the jurisdictions that will be part of the Cooperative System and those that will not, and other provisions of the Consultation Drafts.

The CMA is intended to replace existing provincial and territorial securities legislation in Ontario, British Columbia, New Brunswick, Saskatchewan, Prince Edward Island and Yukon (Participating Jurisdictions). The initial consultation draft of the CMA was published for comment in September 2014 along with the initial consultation draft of the complementary federal Capital Markets Stability Act (CMSA). Blakes has published a series of Bulletins regarding various aspects of the Cooperative System and summarizing comments received on the initial drafts of the CMA and CMSA (please see our various Blakes Bulletins posted on our website). A revised draft federal CMSA has not yet been released.

While the 50 comment letters on the Consultation Drafts in large part expressed support for the goal of harmonizing securities regulation in Canada and moving toward a single national regulator, many commenters expressed concern about the inadequacy of the consultation process given the proposed substantive changes to securities law in certain Participating Jurisdictions, notably Ontario. Other areas on which many commenters focused included the following:

  • Lack of clarity regarding the interface between the Participating Jurisdictions and the other jurisdictions in Canada and the costs of the new Authority
  • The expansion of the types of actors caught by the CMA's definition of "market participant"
  • The imposition of personal liability on directors for misrepresentations in offering memoranda
  • Changes to the availability of the due diligence defence for directors, officers and underwriters for prospectuses
  • The proposed new regulation of extra-territorial distributions
  • The elimination of the exemption from the registration requirement that banks and financial institutions currently enjoy under Ontario law
  • The discretion afforded to the Chief Regulator in a range of areas
  • The potential for a move to a best interests standard for advisers
  • The treatment of self-regulatory organizations (SROs)
  • The approach taken to the regulation of derivatives transactions and participants in those markets
  • Expanded powers provided to the Authority to make freeze orders

After the release of the Consultation Drafts, the Participating Jurisdictions released guidance on certain aspects of the transition from the current regulatory system to the Cooperative System, which are described below.


A large number of commenters repeated their objections to what they viewed as insufficient consultation on certain elements of the Consultation Drafts. In particular, these commenters were concerned that the Consultation Drafts contain a number of provisions that introduce substantive changes to securities law without providing a rationale for such changes. Examples of such provisions include the regulation of extra-provincial distributions, personal liability of directors for misrepresentations in offering memoranda and the broad discretionary power of the Chief Regulator of the Authority to, among other things, compel disclosure of information and withhold a receipt for a prospectus (all of which are discussed in greater detail below).

A number of commenters reiterated concerns initially raised in comments on the initial draft of the CMA and criticized the responses to such concerns. In particular, such commenters maintained that it was an insufficient response simply to note that the approaches of the Participating Jurisdictions differed on a given question, and proposed that an appropriate response would, in contrast, discuss the substantive differences between the approaches and provide a rationale for choosing one over the other(s). Some commenters noted that such a process was proposed for future changes to the CMA and questioned why it was not followed in the adoption of the CMA.


The second round of comments on the CMA saw renewed requests for further information and greater detail about the interface between the Participating Jurisdictions and the non-participating jurisdictions. Given that not all provinces and territories are planning to join the Cooperative System (including regulators for significant capital markets such as Alberta and Quebec), the interface between the Participating Jurisdictions and other Canadian jurisdictions was viewed as critical to minimizing the disruption in the transition to the Cooperative System and ensuring a streamlined system of regulation. The interface would address issues such as whether the Authority would place substantial reliance on the determinations of the securities regulators of non-participating jurisdictions, such as prospectus receipts, or undertake its own full review and approval process.

Some commenters suggested that the current Passport System could provide a basis for the interface between the Participating Jurisdictions and non-participating jurisdictions but expressed concern that the CMA and Initial Regulations did not contain provisions outlining such an interface.

As well, the proposed costs of the new Authority, which will be entirely financed by market participants, have not been disclosed and accordingly, draft regulations showing the fees to be paid by market participants have not been released for comment.


The CMA contains a definition of "market participant" that includes certain categories of persons who are not considered market participants in the current securities legislation of all Participating Jurisdictions, and a number of commenters criticized the expansion of regulatory powers that would flow from the adoption of the proposed expanded definition.

Including new classes of persons in the definition of market participant would impose significant additional requirements on those persons newly considered market participants. Subject to certain prescribed exceptions, the CMA would impose record-keeping obligations on market participants, mandate the authority of the Authority's tribunal (Tribunal) over market participants, and require that market participants comply with an order of the Chief Regulator to provide information, records or other things. It would potentially also subject such new market participants to future new requirements under the Authority's regulation-making authority.

Examples of new categories of persons included in the definition of market participant are control persons and non-reporting issuers that have distributed securities in reliance on exemptions from the prospectus requirement, both of which are included in the CMA definition but not in the definition of market participant in the Securities Act (Ontario) (Ontario Act).


The Consultation Drafts propose a number of changes to the regime governing civil liability for a misrepresentation. One proposed change that attracted widespread criticism was the creation of a new statutory right of action for damages against the directors of an issuer for a misrepresentation in a "prescribed offering document" such as an offering memorandum used in a prospectus-exempt private placement.

The private placement regime, with its various tailored exemptions, has been developed over time in order to respond to the needs and areas of concern specific to the exempt market. Commenters cautioned that the CMA's imposition of civil liability on directors of an issuer for a misrepresentation in an issuer's offering memorandum was a major change to the allocation of risk in the private placement regime that would be disruptive to the functioning of the exempt market that should be reconsidered.


Another change to the civil liability regime in the CMA that was widely criticized by commenters was the reversal of the onus of proving due diligence.

Currently, the Ontario Act, by providing that a director, officer, underwriter, or expert is not liable for a misrepresentation in a prospectus unless he, she or it has failed to undertake a reasonable investigation, requires the claimant to prove that such an investigation was not undertaken. In contrast, the CMA would impose liability for a misrepresentation in a prospectus or offering memorandum unless the person proved that they had undertaken a reasonable investigation, requiring the defendant to establish that such an investigation had been undertaken.


The comment letters indicated widespread opposition to the Initial Regulations' approach to the regulation of extra-territorial, or "outbound," distributions of securities. Institutional investors, industry associations, self-regulatory organizations and others all expressed opposition to the idea that distributions from a jurisdiction should be subject to the securities regulation regime of that jurisdiction.

Currently, under Ontario Securities Commission's Interpretation Note 1, distributions of securities by Ontario-based issuers to purchasers outside of Ontario are generally not required to be made under a prospectus or an exemption from the prospectus requirement. In contrast, the British Columbia Securities Commission requires an issuer distributing securities from British Columbia to comply with the registration and prospectus requirements or rely on exemptions therefrom.

The Initial Regulations adopt an approach substantially similar to the British Columbia regime, and this attracted considerable opposition from commenters, who warned that such an approach may impede issuers in the Participating Jurisdictions from accessing foreign, especially U.S., capital markets. 

A broad array of commenters argued that, to preserve and promote Canadian issuers' access to foreign capital markets, the B.C. model should be discarded in favour of the Ontario model, since the Ontario regime is the Canadian securities regulation regime with which the majority of Canadian and foreign capital markets participants are most familiar.


Industry associations and law firms identified the decision not to carry forward the Ontario Act's exemption from the registration requirement for banks and financial institutions as an area for concern in the Consultation Drafts. In addition to the long-standing exemption from the registration requirement, the regulation of banks' trading activities by the Office of the Superintendent of Financial Institutions was put forward as evidence that the registration requirement was not needed and would create unnecessary regulatory overlap and confusion.

One industry association commenter described the change as "fundamental" and warned of the "material negative impact on how banks, and their affiliated trust companies, conduct their business." Another commenter argued that, without providing a policy rationale for the change, it was inappropriate to remove the exemption and require banks and other financial institutions to undertake the "time consuming and costly endeavour" of determining whether another exemption under the CMA would be available to them.


Many commenters flagged the broad discretion granted to the Chief Regulator under the CMA as worrying. Specific areas of concern that commenters focused on were the discretionary powers of the Chief Regulator to refuse a receipt for a prospectus beyond the current narrowly prescribed grounds for doing so, and to compel the disclosure of information from directors and officers of an issuer.


A number of comment letters noted that the CMA imposes a requirement that advisers deal "fairly, honestly and in good faith" with their clients and that they meet "such other standards as may be prescribed." Commenters generally interpreted this as leaving open the possibility that a best interests or fiduciary standard would be prescribed. Many commenters, including investor advocacy groups and some industry groups, supported the possibility of prescribing such a standard by regulation, but others considered it inappropriate to contemplate imposing such a requirement when the Canadian Securities Administrators (CSA) were still considering whether imposing such a standard was desirable.


A number of SROs weighed in on the Consultation Drafts' treatment of SROs. The CMA contemplates that an order of an SRO disciplinary panel can be enforced as a court order provided that the Tribunal has issued an order in respect of the SRO panel's order. The SROs argued that this unwieldy approach was an inefficient method of promoting compliance with capital markets law and suggested instead that an order of an SRO disciplinary panel should be able to be filed directly with the court.

The SROs also submitted that an SRO should enjoy statutory immunity for actions taken by the SRO in performing its regulatory function. The current draft of the CMA provides immunity to SROs only when they are exercising powers that have been delegated to them by the Authority.


Many commenters, including the International Swaps and Derivatives Association, Inc., in a comprehensive comment letter whose major themes were often mirrored by other commenters, touched on aspects of the Consultation Drafts' approach to the regulation of OTC derivatives.

Concerns were raised that the proposed prospectus and registration requirements for dealers and advisers applicable to OTC derivatives resulted in significant changes from existing practices in Ontario (including the failure to adopt the Ontario registration exemption for financial institutions and the imposition of the outbound distribution requirements discussed above). These changes were viewed unfavourably given the high proportion of Canadian OTC derivatives trading activity involving Ontario market participants and the resulting significant additional requirements for such participants. 

Commenters noted that it would impose an undue burden to require registration (absent an exemption) in one of the existing securities dealer or adviser registration categories until a separate derivatives registration regime is developed. Keeping with the current approach in Ontario, it would be more appropriate to impose registration only once specific requirements relating to OTC derivatives were developed by the CSA Derivatives Committee. Similarly, commenters did not view the requirement for a prospectus (absent an exemption) as making sense in the context of OTC derivatives — especially since prospectus requirements are designed for traditional securities and the CMA contains provisions contemplating the development of specific disclosure requirements for designated classes of derivatives (expected to include derivatives sold as retail investment products). 

Commenters questioned the appropriateness in the context of the Canadian OTC Derivative market of requiring registration by "large derivatives participants" and how such term would be defined in future regulations.

It was recommended that the extension of securities-based market-conduct rules to OTC derivatives be reviewed given the inherent differences between these products. As an example, the duty of registrants to deal with "clients" fairly, honestly and in good faith needs to be reconsidered in the context of OTC derivatives as the reference to "clients" is not clear where contracts are bilaterally negotiated or where two dealers may be the counterparties.


The expansion of the power to issue freeze orders also attracted comments. Commenters noted in particular concerns as to these new powers relative to derivatives and warned that the new provisions might be read in such a way as to authorize the Tribunal or Authority to interfere with the termination of, close-out netting under, or collateral enforcement powers in respect of, a derivatives transaction.

To issue a freeze order, the Tribunal would need to be satisfied that to do so would be "expedient to assist in the administration or enforcement of securities or derivatives law or the regulation of the capital markets in another jurisdiction," and some commenters questioned whether this relatively low standard was appropriate given the potential consequences of such an order.


Subsequent to the release of the Consultation Drafts, the Participating Jurisdictions released a "Summary of Proposed Transition Approach" (Summary), outlining the proposed approach to transition from the current system to the Cooperative System. A number of comments on the Consultation Drafts had requested guidance on how the Authority would treat decisions of predecessor provincial securities commissions and emphasized the importance to capital markets participants of certainty with respect to previous regulatory decisions on which such participants currently rely.

Under the transition provisions proposed in the Summary, a reporting issuer in one Participating Jurisdiction would automatically become a reporting issuer in all the Participating Jurisdictions. This may potentially increase its exposure to liability and fees.

Under the Summary, the transition provisions will, among other things, ensure that decisions (for example, registration decisions, prospectus receipts and exemptive relief decisions) and orders (for example, recognition orders and designation orders) of a predecessor regulator would become decisions or orders, as applicable, of the Authority and would have effect in all Participating Jurisdictions. Where there are discrepancies between decisions of two or more predecessor regulators, the Authority and the Chief Regulator would have the power to vary or revoke decisions of a predecessor regulator in order to resolve such discrepancies.

No comments have been solicited in respect of the transition provisions outlined in the Summary.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions