For nearly 90 years, many have called for the creation of a single national regulator that would oversee Canada’s capital markets.  Invariably, those attempts have been squelched by constitutional concerns as various provinces and territories have refused to cede jurisdiction to a national regulator.  Nonetheless, in recent years, a newly proposed regulatory body, the Capital Markets Regulatory Authority (CMRA), has been gaining traction.  With a launch date scheduled for late 2018, many long-time advocates of a national regulator feel hopeful that a new era is around the corner.

However, a newly released report from the C.D. Howe Institute suggests that that hope may be misplaced. According to the report, the CMRA, which has the support of the federal government, Ontario, British Columbia, Saskatchewan, Prince Edward Island, and New Brunswick, is the product of significant concessions and compromises, lacks the ability to impose regulatory authority across the country, and may ultimately be unsuccessful.  In particular, the report highlights the following deficiencies with the proposed framework:

  • The CMRA is unlikely to achieve sign-on from all Canadian provinces and territories, particularly Alberta, which has remained steadfast in its opposition of a national regulator, and Quebec, which has successfully challenged the constitutionality of a national securities regulator before the Quebec Court of Appeal.
  • The inability of the CMRA to achieve participation from all jurisdictions constrains the ability of the national regulator to operate smoothly and flexibly. Participating jurisdictions would be forced to align the new legislation and regulations with those of the non-participating jurisdictions, limiting their ability to modernize or streamline the framework.
  • The new body is not likely to increase global competitiveness, despite assertions to the contrary. There is no evidence to suggest that Canada’s current regulatory framework is impeding foreign investment and, in any event, securities regulation tends to have a minimal impact on foreign investment.
  • A national framework would impede certain jurisdictions from developing regulations tailored to their unique, local circumstances and from drawing on their specialized experience and knowledge.
  • Despite lofty goals, none of the proposed provisions targeted at protecting investors have been included in the draft legislation, leading some to question whether the CMRA will constitute a step backwards for investor protection.
  • Contrary to assertions, it is not clear that the proposed national regulator will improve enforcement of securities regulations. Traditionally, the federal government has not demonstrated particular proficiency in enforcing the Criminal Code provisions respecting securities offences. There is nothing to suggest that simply importing the federal government and the relevant Criminal Code provisions into the national regulatory scheme will improve enforcement. In reality, enforcement will likely continue to occur at the provincial and territorial level, particularly in light of the fact that some provinces may opt not to join the CMRA.
  • One of the driving motivators for the creation of the CMRA, particularly in the wake of the global financial crisis, was an opportunity to enhance Canada’s systemic risk regulation. That objective could have been better achieved by creating a new stand-alone risk regulator, rather than embedding enhanced risk regulation into the existing regulatory framework. Such a framework is unnecessarily cumbersome, is not aligned with international best practices, and creates potential blind spots in non-participating jurisdictions.

Ultimately, the report suggests postponing the launch of the CMRA until such time as an independent review has been conducted.