The Canadian Securities Administrators (CSA) have a long list of accomplishments from the past year — from policy work to enforcement — and an even longer list to be accomplished in the years ahead.
In a new report, the umbrella group of provincial regulators surveyed its work of the previous year against its existing business plan, which runs until 2025. The report details numerous key achievements, such as proposing fundamental reform for the Ombudsman for Banking Services and Investments (OBSI), that also highlight how much the regulators have left to do.
While the CSA launched a consultation on adopting binding authority at OBSI in the past year, the final rules to adopt that policy remain a work in progress.
Similarly, on mandating climate-related disclosures, the regulators’ work is incomplete, as other authorities, such as the Canadian Sustainability Standards Board (CSSB) and the U.S. Securities and Exchange Commission, are working on their own rules and standards that will likely end up influencing where the CSA lands on climate-related disclosures.
“We remain committed to working towards Canadian disclosure requirements and will seek public comments on a number of matters when we publish our revised rule,” the CSA said in its report. It added that it is following the CSSB’s consultation process, which “may help inform revisions to our proposed climate-related disclosure rule.”
Other long-standing investor protection issues that the regulators continue to grapple with include concerns about potentially misleading advisor titles, and the adequacy of industry proficiency.
In its report, the CSA said it is “working to determine outstanding investor protection concerns in the use of titles” and to come up with policy solutions to that persistent issue.
Additionally, the report noted that the CSA has undertaken a project to review registrants’ proficiency requirements, “with the objective of addressing inherent structural limitations in the current registrant proficiency framework.”
Mutual fund sales practices remain on the regulators’ radar too. The CSA noted it is considering revisions to the sales rule to “modernize the principal distributor model,” and is continuing to examine the use of chargebacks, which has the potential to create conflicts of interest between reps and their clients.
The emergence of the crypto sector also remains an ongoing challenge for the CSA.
In its report, the regulators indicated they issued over 1,000 investor alerts in the past year, up about 40% from the previous year. According to Stan Magidson, chair of the CSA and chair and CEO of the Alberta Securities Commission, over half of those alerts involved crypto.
While the growing crypto sector was the primary reason for the increase in alert activity, Magidson said the regulators are taking an increasingly proactive approach to try and prevent harm before it happens.
“It’s a combination of more activity due to crypto but also enhanced proactivity,” Magidson said in an interview.
On the policy front, crypto has posed a significant challenge to regulators around the world. Although the CSA has been among the leading authorities in developing requirements for this fast-growing and evolving part of the market — both for crypto trading platforms and investment funds that deal in crypto — the development of a comprehensive regulatory framework for the crypto sector remains a work in progress.
Magidson noted that the CSA has taken a novel approach to coping with crypto sector activity by allowing firms to continue operating, provided they sign undertakings that committed them to largely adhering to the same rules as if they were already registered, while the registration process played out. Firms that weren’t prepared to sign faced the threat of enforcement activity.
The CSA has taken a phased approach to crafting requirements for the crypto sector, Magidson said, tackling the most glaring issues first, and now working on “phase two,” which will entail “further direction to the industry” about regulators’ concerns. A phase three would address any remaining issues.
Another area of ongoing regulatory focus is the growing problem of online investment scams and frauds, and the use of social media by investors seeking information and by scammers looking to exploit the power of these tools.
In its report, the CSA noted that a regulatory task force explored “abusive promotional activities and techniques, and challenges with investigating and prosecuting this misconduct.” It is now developing recommendations to help tackle the problem.
The task force “is also pursuing opportunities for wider CSA collaboration in detecting and analyzing fraudulent or misleading promotions that are broadcast through social media,” it said.
The regulators are also working with law enforcement, particularly the RCMP’s Integrated Market Enforcement Teams, in an effort to create “a formal framework for CSA-RCMP collaboration aimed at combating online investment fraud.”
Tackling this growing problem of online fraud is “a team sport,” Magidson said.
Alongside the array of investor protection concerns still on the regulators’ plates, they are pursuing initiatives aimed to curb regulatory burdens, such as reforms to issuers’ continuous disclosure requirements, facilitating electronic access and reducing needless filings.
The report noted that the CSA is also still working on rule changes to modernize continuous disclosure requirements for investment funds, and to improve funds’ disclosure filings, both for investors and the industry.
And then there are issues such as short selling, as complaints about the phenomenon persist despite repeated work that has found little evidence of problematic activity.
In its report, the CSA noted it has formed a working group with the Canadian Investment Regulatory Organization to explore possible reforms to the rules around short selling.
Referring to the rules, Magidson said, “We are looking at fine tuning some of our provisions.”