Not Ready for Prime Time: Canada’s Proposed New Securities Regulator

Over the years, many voices in the securities industry, with the support of politicians and academics, have advocated for a single national regulator that would discharge pan-Canadian capital-market oversight more effectively and more efficiently than the prevailing system of multiple provincial regulators. This assertion rests, not unreasonably, on the proposition that a single national regulator administering a single securities statute and operating with a single fee schedule would eliminate the duplication, delays and diseconomies inherent in a system consisting of 13 regulators, 13 securities acts and 13 fee schedules. Nevertheless, repeated efforts over the years to establish a national securities regulator have all failed; according to some, however, this may be about to change. The federal government, together with five provinces (Ontario, British Columbia, Saskatchewan, Prince Edward Island and New Brunswick) and one territory (Yukon) are currently developing and planning to launch, before the end of next year, a new securities regulator. According to the participating jurisdictions, this new regulator, the Capital Markets Regulatory Authority (CMRA), will streamline Canada’s capital markets regulatory framework to better protect investors, foster more efficient capital markets and manage systemic risk. As a result, the Canadian public expects that the CMRA, once launched, will feature many of the attributes and offer many of the benefits that have typically been associated with a single national regulator. Unfortunately, these expectations are destined to be disappointed, if not betrayed, because the CMRA in its current form is not, and will not be able to operate as, a single national regulator. While it is true that the original objective of this most recent securities regulatory reform initiative was the creation of a single national regulator, a combination of constitutional imperatives and political choices precluded that outcome. As a consequence, the CMRA is a significantly compromised Plan B that will lack the ability to unilaterally impose its regulatory authority across the country, a fundamental feature, if not prerequisite, of a single national regulator. Furthermore, there is no assurance or even likelihood that the key provinces of Quebec and Alberta will join the new regulator following its launch. In its current form, it is not even obvious that the CMRA will constitute an improvement relative to Canada’s existing securities regulatory system. Canada’s provincial securities regulators have, in recent years, collaborated to create a relatively high degree of harmonization in securities regulation, which has fostered vibrant and resilient capital-market growth in Canada. While differences among jurisdictions persist, particularly with respect to investor protection initiatives, it would be more than unfortunate if the introduction of the CMRA upsets this regulatory equilibrium and jeopardizes the positive outcomes and greater cooperation that have been achieved. There is a legitimate question as to whether the CMRA, in its current form, is ready for prime time. With so much at stake, it is vital that the participating jurisdictions provide more and better information about what exactly the Canadian public will be getting and what exactly it will be sacrificing or putting at risk if the new regulator launches as planned. To do this in a meaningful way, the participating jurisdictions need to put the brakes on the current initiative and defer its launch pending an independent review and analysis of the CMRA, as it is currently constituted.