CMRA: Fitting in

Yet at the same time, the day-to-day business of supervising Canada’s capital markets – and planning for the future – has to go on at the existing regulators. At this point, it’s unclear how they and the CMRA are going to fit together.

This fundamental tension between the ongoing work of the existing Canadian Securities Administrators (CSA) and the proposed new co-operative regulator is most evident in cases in which big, national projects are concerned.

For example, in mid-October, the Ontario Securities Commission (OSC) issued a request for proposal (RFP) on behalf of itself and the other major regulators – the B.C. Securities Commission, the Alberta Securities Commission (ASC), and Quebec’s Autorité des marchés financiers – for a major new technology project that would see all of the existing national database systems replaced by a single, integrated system.

The RFP calls for bids on a contract to “design, build, configure, implement, stabilize, support and provide training” on a new, single system to consolidate and replace all of the CSA’s existing systems.

The systems that would be affected by this initiative include the filing system for securities issuers and investment funds (SEDAR); the insider reporting system (SEDI); the national registration database (NRD); the disciplined persons database, found through the national cease-trade order (CTO) database; and the exempt-market filing system in British Columbia, known as EDER. The CSA is planning to integrate all of these databases into a single system over the next several years as part of a project to revamp its technology.

“The renewal of the national systems is one of the key priorities to be undertaken as part of the CSA business plan to enhance the information technology used by the CSA and certain of the [self-regulatory organizations],” says Ian Campbell, chief information officer with the CSA. “The CSA plans to replace the national systems in phases over the next five years to integrate the stand-alone systems into a modern single, intuitive, secure filing system to deliver capabilities that support existing regulatory requirements and can be easily extended to support future requirements for the benefit of regulators and market participants.”

These major technology projects often are a challenge at the best of times. In this case, that challenge may be compounded by the added uncertainty of the proposed changes to the regulatory framework, as it’s not yet clear just how the CMRA will factor into all of this. To start, two of the primary jurisdictions looking at carrying out this major systems overhaul are currently part of the CMRA project (Ontario and B.C.) and the other two (Alberta and Quebec) are not.

According to Bill Rice, chairman of the CSA and also chairman and CEO of the ASC, the regulators are operating under the assumption that they will continue working together whether the CMRA materializes or not.

“At the moment, we are working together within the CSA,” Rice says, “assuming that we will continue to have a form of national regulation within Canada, whether or not the [CMRA] comes into existence, and regardless of which jurisdictions are participating and which are not.”

But just how the CMRA will work with the provinces that don’t participate is not yet clear. Will the CMRA become a member of the CSA? Will there have to be some sort of bilateral agreement between the CMRA and the CSA? Or a series of agreements between the CMRA and individual provinces? Will the CSA continue to exist? And, if so, in what form?

At this point, it seems no one has figured this out.

This lack of clarity about how the new regulator will work with the provinces that don’t join it isn’t just an issue concerning national systems upgrades. Confusion has also arisen in connection with new trade reporting requirements in the over-the-counter derivatives markets.

The proposed legislation to create the CMRA, which was issued earlier this year (the comment period recently was extended to Dec. 8) contemplates giving the CMRA the power to make national rules regarding data reporting and designating trade repositories. But it’s not clear how a federal trade reporting regime will affect these reporting regimes in provinces that won’t be part of the CMRA.

Notes Margaret Grottenthaler, head legal research partner with Stikeman Elliott LLP in Toronto, in a recent article on the issue: “Will these provincial authorities recognize or exempt any CMRA-designated trade repository? Will the federal regulation override the provincial rule where there is overlap? We will have to wait and see.”

Certainly, policy-makers are expecting that the various players within the Canadian regulatory system will find some way of working together. The memorandum of agreement (MOA) among the various provinces that are participating in the CMRA project indicates that they expect to come up with a process for the new authority to interact with the provinces that don’t participate. According to the MOA: “The CMRA will use its best efforts to negotiate and implement an interface mechanism” with each jurisdiction that is not participating in the co-operative regulator, “such that the co-operative system contemplated by this MOA is, effectively, of national application.”

This sort of de facto national regulation is what the CSA has long envisioned itself as providing. And it’s not yet clear how this aspiration will be any better realized once the new co-operative authority is on the scene.

“While an interface among the proposed CMRA and the non-participating jurisdictions has yet to be determined,” Rice says, “CSA members are of the view that there must be one that, among other things, provides for the sharing of the national systems.

“It is essential,” he adds, “for the efficient functioning of the capital markets that there is modern and effective technology in place for the benefit of all market participants and all securities regulators.”

The CSA envisions the effort to replace and consolidate all of its national systems into a single filing system will generate a long list of possible benefits for both regulators and market participants. In addition to creating a single “system of record” for all sorts of regulatory filings, the CSA suggests, the new, integrated system will create a searchable central information repository.

In addition, the CSA believes, the integrated system will create opportunities to increase efficiencies and regulatory effectiveness. The new system should allow an evolution from simply gathering information from market participants to facilitating more timely analysis of that data.

Whether the CSA’s new system can deliver all of these benefits remains to be seen. Even without the added uncertainty of whether there will be a CMRA – and if there is, how it will fit into the CSA – big technology projects are notoriously difficult to pull off on time and on budget. Indeed, the CSA just went through that experience when it moved several of its major systems (SEDAR, SEDI and NRD) to a new service provider, CGI Information Systems and Management Consultants Inc.

The changeover to CGI from CDS Inc. was supposed to take place in October 2013, but ended up taking a few months longer than expected because of technical glitches that took time to resolve. The process eventually was completed this past January.

Now, the bidding process to replace the CSA’s existing national systems is set to take place over the coming weeks. The CSA will open a data room for interested bidders on Nov. 4, and the deadline for bids is Dec. 15. The CSA expects to enter into final negotiations with the winning bidder at the end of the next summer – just about the time that the new CMRA should be set to launch.

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