Although there were some significant shifts in the regulatory landscape in 2011, the year ahead promises to be a pivotal one in Canadian securities regulation.
Certainly the biggest macro event looming over the regulatory environment in 2012 is the pending decision by the Supreme Court of Canada on the constitutionality of federal securities regulation. That case, which was heard in April 2011, is a landmark event that offers some hope that a debate that has dragged on for more than 40 years will finally be put to rest, once and for all.
When the court concluded its hearings, it was expected that its opinion would be delivered by the end of December. If that hasn’t happened (Investment Executive went to press before monthend), it won’t be long into the new year; a decision must be handed down by February because of the pending retirement of a couple of the judges that heard the case.
Although it would be pointless to try to guess how the SCC will rule, there’s no question it will have a major impact on the future of Canadian securities regulation. The SCC ruling will either effectively kill the dream of a national securities regulator and thrust the spotlight back on the existing provincial securities commissions or it will finally open the door to the creation of a national authority. Either result could be messy.
Even if the SCC endorses federal jurisdiction, the voluntary model being pursued by the feds is likely to create its own significant uncertainty about just which provinces will join and which won’t. For now, only Ontario looks like a sure thing. Alberta and Quebec have long been entrenched against the idea, and some of the other provinces have gone back and forth on whether they are in or out. Either way, the SCC’s long-awaited ruling in this case is going to be a momentous event that sets the course for Canada’s regulatory structure in the years ahead.
Despite the fundamental structural issues that regulators are likely to face this year, the capital markets also are facing a structural upheaval of their own with the consolidation and integration of the trading and clearing businesses being proposed by Maple Group Acquisition Corp.
Both the Ontario Securities Commission and the Autorité des marchés financiers have now held public policy hearings into the proposed deal. Their decisions on whether to allow the proposed transactions, and what conditions they might impose if they do, will be a critical issue for the markets in the year ahead.
Apart from those two structural issues, there are several other issues closer to the ground that bear examination as well.
At the head of the list is enforcement. The regulators are relentlessly criticized for inadequate enforcement — and they are forever promising to improve it. In recent months, the OSC has been demonstrating a more active approach, and it’s considering several procedural and policy changes designed to improve enforcement productivity. It remains to be seen whether the OSC will adopt these new tools; and, if so, whether they will have the desired effect on enforcement productivity — and whether their use will spread to the rest of the country.
A close second on the regulators’ to-do list is investor protection. There have been signs that retail investors’ issues are making their way onto the regulators’ radar screens. The emergence of the OSC’s investor advisory panel as a credible voice on behalf of inves-tors has helped bolster the work of existing investor advocates, such as the Canadian Foundation for Advancement of Investor Rights and Small Investor Protection Association Inc.
These groups are helping to provide a retail investor’s perspective on regulatory policy and pushing retail investors’ issues onto the regulatory agenda. For example, in response to efforts by both groups, the OSC has promised to study the question of whether a statutory fiduciary duty should apply to financial advisors, and has also pledged to explore ways to improve access to investor restitution.
So far, the promise of these two new initiatives has yet to be matched by any action. But the test of whether investor advocates are being heard may come first in the regulators’ responses to existing rule-making efforts when investor advocates oppose what the regulators are proposing, such as the plan to allow investment fund companies to use the new Fund Facts document in place of traditional prospectuses or the proposal to reduce regulatory requirements on venture-level companies.
The policy direction that regulators take on these ongoing initiatives will be a strong sign regarding whether investors’ voices are ultimately being heard.
Finally, amid all these other issues, regulators will be challenged in the coming year to nail down reforms in response to the financial crisis — ranging from their own initiatives targeting structured products and exempt markets through to meeting Canada’s G20 commitments to reform the regulation of the over-the-counter derivatives market. IE