Critics argue that the decision greenlighting a new model of regulation overlooks important questions
Last week, the Supreme Court of Canada settled an issue that’s been impeding efforts to establish a national model of securities regulation.
In a decision handed down on November 9, it upheld the constitutionality of the proposed Cooperative Capital Markets Regulator (CCMR). The court declared that the body does not infringe on provincial territories’ ability to enact securities regulation, and the federal government would not be overstepping its authority as it would address systemic risk in securities markets, as opposed to day-to-day securities activities.
With that decision, the federal government and the jurisdictions that support the proposal — including British Columbia and Ontario — have gotten a much-needed green light. Still, that hasn’t convinced everyone to get behind the plan.
“We acknowledge the Supreme Court of Canada ruling, but intend to retain our autonomy and keep our expertise in Québec,” Québec Minister of Finance Eric Girard said in a statement shortly after the decision. “The Autorité des marchés financiers will continue to be the integrated regulator responsible for overseeing all stakeholders in the Québec financial sector.”
Aside from Quebec, Alberta is another capital market with significant activity that’s not participating, which draws question marks over the ultimate structure of Canada’s overall securities regulatory system.
“It may be that the inefficiencies resulting from the CCMR [given the refusal of Quebec and Alberta to join] will be greater than under the current model; issuers and investors will need to deal with separate regulatory regimes within the same country,” said Anita Anand, the J.R. Kimber Chair in Investor Protection and Corporate Governance at the University of Toronto, in a note published by the CD Howe Institute.
Anand also cited concerns on how systemic risk can be effectively managed from a regulatory standpoint. The definition of “systemic risk” proposed for the new regime, she said, refers to threats that have not yet crystallized and are therefore likely hard to detect. That grey area leaves the door open for disputes over “whether federal laws truly respond to systemic risk … or comprise day-to-day securities regulation.”
Harvey Naglie, a former senior policy advisor with the Ontario Ministry of Finance, also previously criticized the policy proposal, citing its lack of explicit retail investor representation and failure to address shortfalls around complaint handling and restitution.
“Given the lack of investor representation on the [Capital Markets Regulatory Authority] board, and the absence of an investor advisory committee, it is hard to see if this structure will result in a net improvement for the retail investor,” said KenKivenko, president and CEO of Kenmar Associates.
“The Ontario Securities Commission, which will be subsumed into the new entity, was the Canadian thought leader regulatory regulatory reform and investor protection,” he added.
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