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Regulation

Plan for national securities regulator gaining traction in Canada

A proposed national securities regulator in Canada that’s targeting a 2018 start to operations is getting support, sources said, from institutional investors interested in reducing the complexity of dealing with capital markets regulations that now vary by province.

“It may seem pie-in-the-sky at times because the proposal seems to lurch forward at a snail’s pace,” said Scott McEvoy, partner at the law firm of Borden Ladner Gervais LLP, Toronto, “but I think most people hope that it will happen.” Borden Ladner represents Canadian pension funds.

Each of Canada’s 10 provinces now regulates securities issuance and trading individually. Proponents of a single regulator say the current system is too complex and cumbersome to administer and regulate, and needlessly complicated for institutional investors domestically and globally that want to invest in Canadian companies.

Federal and provincial finance ministers last July said they expect to enact national and provincial legislation by June 30, 2018, to create the Capital Markets Regulatory Authority, which should be operational later that year, according to Bloomberg. Officials in Alberta and Quebec said those provinces will not participate.

The CMRA “will reduce cost and streamline the process” for filing and regulating securities issuance, Mr. McEvoy said. “That’s good for institutions. Now the process is too complex. (A cross-provincial system) will reduce cost because it will mean less time and energy from accountants and lawyers. Simpler is better. Issuers are in favor of this, managers are in favor of this, institutional investors are in favor of this. It’s just a bit of politics that’s keeping this from happening.”

The Canadian Supreme Court in 2011 ruled the federal government could not impose such a proposal on unwilling provinces, but cooperation among most provinces since then has shown that standardizing securities regulation across the country is possible. “The Supreme Court didn’t draw a line in the sand on this issue,” Mr. McEvoy said. “The government is taking parts of their decision to move forward, with more coordination and collaboration with provincial entities. It’s still possible.”

Stephen Erlichman, executive director of the Canadian Coalition for Good Governance, Toronto, said a single securities regulator could result in “more efficient Canadian capital markets that could facilitate the raising of capital from investors across Canada and internationally, which in turn could result in a lower cost of capital for Canadian companies.” He also said it could enable Canada “to identify and manage systemic risk on a national basis.”

Added Julie Cays, chief investment office of the C$8.6 billion ($6.5 billion) Colleges and Applied Arts and Technology Pension Plan, Toronto, “Institutional investors have generally come out in favor of a single securities regulator to have one set of regulations, one set of laws. It would be better for issuers, for sure, and easier to enforce when things are going wrong.”

Mr. Erlichman agreed that the enforcement is an important aspect to the coordinated regulatory system. “The enhanced criminal and administrative enforcement provisions of the proposed legislation should lead to more efficient and uniform enforcement of securities related offenses across Canada (and internationally), and thus better protection for investors across Canada.”

Kevan Cowan, who was named in November as the CMRA’s chief regulator, could not be reached for comment.