Ian Russell argues that efforts at cooperative system have long impeded progress towards harmonized system of regulation
The decision to pause the operations of the Capital Markets Authority Implementation Organization (CMAIO) was announced with little fanfare last week. No media briefings, no press releases – just a five-sentence announcement on the home page of the organization’s website, which attributed the move to “participating governments [taking] action to respond to the Covid-19 pandemic, prepare for economic recovery and implement reforms to provincial securities legislation.”
In a statement, the Ministry of Finance in Quebec called the move “an opportunity to put an end to the project for a national securities regulator.” For its part, the Portfolio Management Association of Canada (PMAC) expressed disappointment, maintaining that a national regulatory system is necessary to sustain and grow Canada’s standing in the global capital markets.
Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC), stands in the middle of those two views.
“I was not surprised at the announcement,” Russell told Wealth Professional. “It was clear for a considerable length of time that the body established to help the push towards a cooperative regulator was not making much progress.”
The perfect impeding the good
As Russell explained, there was originally a lot of excitement around the idea of creating a national capital markets regulatory system. Born from a memorandum of understanding between the federal finance ministry and the provinces of Ontario and British Columbia in 2013, the project was originally met with a flurry of activity and coordination. In succeeding years, other provinces signed on, and the CMAIO was set up in July 2015 on behalf of participating jurisdictions as an interim body.
But over the past several years, that initial energy dissipated. As Russell tells it, the CMAIO’s efforts went into a period of drift; without a strong champion for the cause, the idea of a cooperative capital markets regulator eventually turned from a grand motivating vision into a hazy handicapping promise.
“The slow process in building the national cooperative system, extending for years, has impeded progress on alternatives,” he said.
Under the passport system of the Canadian Securities Administrators (CSA), market participants seeking access to multiple provincial markets are essentially only required to satisfy the rules set out by their principal regulator. Once they submit the requirements for a particular purpose set out by their regulator, they are considered compliant for all intents and purposes across all jurisdictions that participate in the passport system.
That system was established following a memorandum of understanding signed by nearly all provinces and territories in 2004. The lone holdout, the Ontario Securities Commission (OSC), took the view that the passport proposal fell short of achieving lofty but necessary goals such as consistent regulatory decision-making, non-duplicative fees for registrants, and better enforcement of securities regulation across Canada.
“Until now, Ontario has argued that signing on to the passport system would dilute support for a cooperative regulator,” Russell said. “The announced pause and evident lost momentum in the project means it’s time for the province to sign on to the passport system.”
Towards a stronger national system
While he is shedding no tears over the CMAIO’s suspended operations, Russell remains adamant that Canada would benefit from having a harmonized system of securities regulation. The prospects of such a system arising from the organization’s efforts were slim to none, he contended, as the most it could have achieved was to create an umbrella group of separate provincial regulators. As CMAIO exits into the wings, the country may have the best chance of achieving that goal.
“What has happened over the last couple of years is a rejuvenation of the CSA,” Russell said. “We’re seeing really positive evidence that the provincial commissions are working much more closely than ever before to move towards a harmonized system.”
As a prime example, he pointed to how CSA members worked to hash out differences of opinion and came out with the client-focused reforms, a unified body of changes focused on conduct. Other items on the CSA’s plate, including reforms around corporate disclosure reform, electronic dissemination of information, and regulation of crypto assets, suggest a greater-than-ever willingness to get in sync.
Also crucial for the national agenda, Russell said, is a systemic regulator to gather information, monitor capital flows in the markets, and interpret risk changes in the marketplace; the absence of such an entity, which would fall under federal jurisdiction, has made Canada the subject of much criticism from the International Monetary Fund (IMF) over the years. Establishing a federal-level Serious Fraud Office, he added, would help the country shed its image of being soft on white-collar financial crimes.
“Because the legislation against white-collar crime resides in the Criminal Act, it’s a function that falls under federal jurisdiction,” Russell said. “Historically, Canada hasn’t had a permanent policing entity focused on that. It would be an ad hoc body assembled with a mix of staff from the provinces and the RCMP, which doesn’t have much expertise in financial crime.”
Creating these systems and entities, in his view, would take coordination across federal and provincial levels. Rather than just dropping the baton with the failed efforts at the cooperative regulator, he argued Ottawa has to take leadership through the federal finance ministry. And because of Canada’s multi-jurisdictional framework of securities regulation, provincial authorities also have to get involved as they take authority over day-to-day regulation.
“These are not new ideas. They have been out there for several years,” Russell said. “The problem was that the systemic regulator and white-collar crime enforcement embedded within the cooperative regulator were not making any headway. What we have now is an opportunity to build the pieces for a strong, harmonized capital markets system for Canada.”
