No one will ever accuse Canadian regulators of acting with excessive haste. Proposals often take years to wind their way through the system, particularly when one of the objectives is to get all the provinces to agree on a particular policy. The latest casualty of this leisurely approach is the all-important reform of registration and regulation for investment funds.

The proposed overhaul of the registration system was always a massive undertaking, which is why the initial plan to complete the process by the end of 2007 (it was introduced in early 2007) appeared optimistic in the extreme.

After all, much more modest proposals often take years to reach fruition. In this case, the regulators are proposing a fundamental rethink of both the registration categories and the basis of registration itself. That should lead to a new set of obligations placed on certain firms (such as fund managers), and changes to the requirements imposed on most others.

Given the significance of the reform and the sweep of its effects, it was hard to believe that the project could be completed in less than 12 months, although the proposed new system had been in development for some time. Clearly, that initial deadline has long since passed, yet the proposed new system still doesn’t have a hard and fast implementation date.

Indeed, in mid-November, the Canadian Securities Administrators said that it will not be finalizing the rule until the spring, at which point the CSA should have a better idea when the reforms will ultimately take effect.

In announcing the delay, the CSA says that it needs more time to develop the final version of the rule. It now expects to complete that task by the end of April 2009, “at which time we will be in a position to provide a timetable for implementation,” it says.

This new non-target date is just the latest broken deadline for this reform effort. Not only has the initial, overly optimistic plan to get the new system in place by the end of 2007 fallen by the wayside, but according to an International Monetary Fund report published in February 2008, the IMF was told that registration reform would be in place by July 1 of this year.

That deadline came in a report detailing the IMF’s assessment of the stability of the Canadian financial services sector. In that report, among other things, the IMF singled out the lack of regulation of collective investment schemes (investment funds) as one of the outstanding weaknesses of the securities regulatory system in Canada.

However, the IMF noted that many of its concerns in this area would be resolved by the proposed registration reform, which would impose obligations on fund managers such as capital requirements, proficiency standards, insurance obligations and conflict-of-interest guidelines. It was promised that this would be in place by this past summer.

But, that deadline was never realistic, given that the second version of this proposal was only published for a 90-day comment period in February. The CSA reports that it received more than 300 comments on the latest version of the planned reforms.

Despite the avalanche of comments, the CSA had been touting yet another deadline for registration reform. For instance, it indicated in seminars and industry conferences that it was promising that the new registration system would be in place by March 30, 2009. Now it admits it won’t be meeting that deadline, either.

That said, there’s no indication that these proposed reforms are going to disappear. Although firms that are likely to face increased oversight under the new system may be hoping that these plans will just fade away, as regulatory initiatives sometimes do, that doesn’t look to be the case here.

“I certainly don’t get any sense that registration reform is off the rails,” says Prema Thiele, partner with Borden Ladner Gervais LLP in Toronto. “Far from it.”

Rather, she suggests that varying legislative calendars are part of the problem. Indeed, some of the registration reform proposals require legislative changes, and that always makes comprehensive national reform tricky within a provincial system.

One of the central criticisms of the latest version of the rule is that Ontario, in particular, appears to be intent on taking certain provisions out of the securities rules and enshrining them in legislation, which will make them harder to alter in the future.

@page_break@Nevertheless, Thiele says, there’s just no way to proceed with this reform without involving the various provincial legislatures. “No matter how I feel about the flexibility of rules versus statutory pronouncements or about the legislative process, there would be no way to properly implement [registration reform] without statutory changes,” she says, adding that some of its provisions have to be set out in legislation.

Given the necessity of legislative involvement, provincial calendars come into play. Thiele points out that Ontario likely won’t have an opportunity to pass amendments to its Securities Act until the spring session; and with an election underway in Quebec, it is likely on a similar schedule, she notes.

As a result, she says: “My guess is that the CSA said to itself that since there is time to tidy up the rule and the companion policy and the consequential amendments to other rules, that can be done over the winter [rather than pushing out the final version before Christmas].”

The theory that the rule will simply be cleaned up, rather than changed extensively, is echoed by Doug Hyndman, chairman of the B.C. Securities Commission. Hyndman says that there likely won’t be any major changes to the rule, but that there will be “quite a few technical changes to make sure we get it right.”

“This is a major reform, so it’s very complex,” he points out.

However, some of the significant differences between the provinces on this initiative aren’t likely to be resolved conclusively one way or another.

For example, both B.C. and Manitoba have resisted the idea of imposing registration requirements on exempt market dealers, and Manitoba has declined to adopt the move to a “business trigger” from a “trade trigger” for determining what sort of activity requires registration.

Hyndman stresses that the proposals are already substantially harmonized, and he doesn’t foresee B.C. changing its’ view on exempt market dealers.

If there are only to be revisions to the details of the rules, but not massive changes, then it also seems unlikely that the CSA will tackle other long-standing issues, such as personal incorporation, in the final version.

One issue that will be addressed is foretold in the CSA’s consultation paper on its response to the credit crisis. In that paper, the CSA pledges that its ABCP working group will review certain definitions in the proposed rule to ensure that they capture asset-backed commercial paper and similar structured products under the conflicts of interest provisions in the new rule.

While the date that this all takes effect remains uncertain, there’s still every expectation that registration reform will happen. Thiele’s advice to dealers and fund managers is that this is not going away. Firms that are dreading its effects should enjoy the holiday while it lasts. Ultimately, they’ll have to face this new regime. IE