The federal government has taken the next step towards the creation of a national securities regulator, releasing proposed legislation to create the new body and asking the Supreme Court of Canada for a ruling on its constitutionality.

On Wednesday, the Department of Finance released the proposed Canadian Securities Act, which is built on existing provincial legislation, to create the Canadian Securities Regulatory Authority. The proposed CSRA would be a self-funded Crown corporation, overseen by a board of directors appointed by the Governor in Council. The new authority would be divided into a regulatory division and an adjudicatory division, the Canadian Securities Tribunal, and it would include an investor advisory committee to solicit investor input in policymaking.

The proposed act also establishes a federal/provincial/territorial council of ministers consisting of the federal minister of finance and a minister from each participating province and territory, to oversee the administration of the act and securities regulation policy in general. They would also advise on board appointments and other key positions within the CSRA.

The new legislation also proposes new investigative powers to improve enforcement; gives the CSRA a role in financial system stability; and grants the authority to oversee a wide variety of market participants (dealers, advisers, investment fund managers, exchanges, clearing agencies, self-regulatory organizations, credit rating agencies, trade repositories and auditor oversight organizations) and markets, including over-the-counter derivatives.

The proposed new regime is voluntary. Alberta and Quebec have long voiced opposition to such a move, and are challenging it in court. To that end, the federal government has referred the proposed act to the Supreme Court of Canada for its opinion on the question of whether the new act is within the legislative authority of parliament.

“The opinion will provide legal certainty to all provinces, territories and market participants,” said Rob Nicholson, minister of justice and attorney general of Canada. Should a favourable ruling be received from the Supreme Court, the federal government intends to introduce the act for adoption in parliament, which would then go through the normal parliamentary legislative process.

Federal finance minister Jim Flaherty, who has long pushed for the creation of a national regulator said, “The proposed act we have released today brings us closer to the regime that markets demand and that Canadian investors need.”

The Investment Industry Association of Canada immediately lauded the move, saying it will “enable Canada to meet the challenges of securities regulation in highly integrated, innovative and dynamic global markets. The guiding principles of the Authority, its consolidated expertise and resources, enforcement measures and streamlined structure and accountability, will provide cost-effective and responsive regulation, strengthened market integrity and investor protection, and promote capital market liquidity.”

The Investment Counsel Association of Canada (ICAC), which represents the country’s portfolio managers and investment counsellors, voiced its strong support for the proposed legislation.

“The creation of a national securities regulator will ultimately impact all Canadians in a very positive way,” said Katie Walmsley, ICAC president. “The government’s proposal is an important milestone in the process to improve Canada’s ability to attract investment and protect investors.”

The Toronto Financial Services Alliance, a group whose mandate is to enhance and promote the Toronto as a premier North American financial services centre, also expressed its support for the proposed Canadian Securities Act.

“The need to comply with differing securities regulations in each province and territory continues to be a disincentive for global players in the financial services industry to locate here,” said TFSA president Janet Ecker. “Canada is the only major industrialized country without consistent national standards in securities regulation. This will bring us in line with the rest of the world.”

Jim Allen, head of capital markets policy at CFA Institute said, “A significant majority of our Canadian members have consistently told us that Canada’s capital markets, generally, and investors, specifically, are poorly served by the fragmented nature of the current regulatory system.”

The Canadian Bankers Association expressed its approval of the government’s move to table legislation to create a national securities regulator.

“We are pleased by the government’s perseverance on this important economic issue as Canada’s current fragmented system puts us out of step with other countries around the world,” said Nancy Hughes Anthony, president and CEO of the CBA. “We believe a national securities regulator will benefit businesses of all sizes in all parts of Canada and improve our global competitiveness.”

IE