Backward step for national regulator?

With those laws still in the works, the CCMR clearly is not going to meet its revised goal of launching in the autumn of this year. The new target date for enacting the required legislation has been pushed back to June 30, 2018, with the new authority slated to start operations at some point that year as well.

Although the news that yet another CCMR launch has been scrubbed appears to be another couple of steps backward, this latest delay was accompanied by a small step forward: the announcement of a board of directors for the new regulator, which will be known as the Capital Markets Regulatory Authority (CMRA).

The board is headlined by some well-known names, including Howard Wetston, former CEO and chairman of the Ontario Securities Commission; Harold MacKay, a lawyer in Regina who headed up the Task Force on the Future of the Canadian Financial Services Sector in 1997, and who served on the Wise Persons’ Committee on Securities Regulation in 2003; and Eric Tripp, former president of Bank of Montreal’s capital markets division; as well as numerous securities lawyers and financial services sector veterans.

In total, the board is comprised of 15 directors, which exceeds the planned maximum of 12 directors that the participating jurisdictions previously agreed upon.

Nevertheless, an overstuffed board is far from the only obstacle facing the CCMR initiative. There still are fundamental legal, policy and operational issues to be resolved over the next couple of years, such as finalizing the two sets of required legislation (both federal and uniform provincial laws) and the CCMR’s rules; passing pertinent laws in each participating province; and figuring out how the CCMR will work with the provinces that aren’t taking part (most important of which are Alberta and Quebec).

The latest draft of the proposed federal legislation was published last spring. And the feedback highlights the investment industry’s continued concerns.

Although many of the comments indicate that the revised draft is an improvement on the first attempt, there remains a good deal of uncertainty about how a new regime designed to ensure that regulators can monitor and manage systemic risk on a national basis will work in practice.

There also are concerns about the scope of the CCMR’s authority; the new regulator’s ability to collect and protect the data required to assess systemic risk; and practical worries about how the various pieces will fit together in this new regulatory model.

Indeed, ever since the first publication of draft legislation in 2014, the investment industry has expressed concerns about how the regulator will work with the securities regulators in the provinces that aren’t participating – particularly because the new federal law that focuses on systemic risk and data collection will apply in every province, regardless of whether it’s part of the CCMR or not. So far, this concern remains unresolved.

The comment from the Portfolio Management Association of Canada on the latest draft federal law stresses the importance of developing an effective mechanism for the provinces to work together, regardless of whether they are part of the co-operative regulator.

Similarly, the Investment Funds Institute of Canada’s (IFIC) comment suggests that there should be a standardized process for collecting information from the industry, which may prove to be a costly endeavour.

Specifically, IFIC’s comment states that the industry should have a say in developing this process and that the CCMR must pay special attention to data security, given the growing risk of cyberattacks.

The scope of the new regulator’s authority and the nature of the limits on its powers continues to be of concern. How the new regulator will determine what it considers to be systemically risky – which will bring certain products or business practices under greater oversight – is of particular concern.

The Investment Industry Association of Canada‘s comment states that there needs to be more clarity on this last point.

Similarly, statements from the insurance industry convey worries that aspects of that business, such as segregated funds, may come under the scrutiny of the new authority.

Conversely, comments from investor advocates such as the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada) are campaigning for a broad definition of what could be considered systemically risky.

FAIR Canada’s comment states that that organization supports including a comprehensive list of products that the average retail investor would consider to be investments, such as principal protected notes and seg funds – even though these products currently do not fall under the jurisdiction of securities regulators because those investments are considered banking and insurance products, respectively.

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