A federal securities commission on the horizon?

On Tuesday, the federal government’s Expert Panel issued its recommendations on securities law reform. It is the umpteenth panel since the 1930s to study this issue. Unlike its predecessors, it has a very good chance of seeing its recommendations implemented.

While imperfect, establishing one national securities regulator will make regulation and capital raising more efficient and effective. All capital market participants should support the implementation of the Panel’s recommendations as quickly as possible.

The recommendation
The Panel’s report recommends that the federal government establish a national securities commission. It trots out the usual reasons for a national securities commission, such as the slow pace of policy making because of the need for consensus among the various provincial regulators and the need for a strong voice on international bodies.

It recommends a model in which provinces would opt in, that is, amend their securities legislation to mirror the federal legislation and defer to the federal commission. Predictably, some provinces are resisting this. The Panel recommends that public companies and registrants in non-participating jurisdictions also be able opt in and be governed by the federal regime rather than their provinces’. Few, if any, companies or registrants would fail to avail themselves of this option, which is why we are likely to see a federal commission in the not-too-distant future.

The legislation
The draft legislation accompanying the Panel’s report is based on the Alberta Securities Act, which is the most up-to-date in the country. While this is no worse than what is in place today, it is unfortunate that the Panel didn’t take this opportunity to improve it.

For example, the Panel supports principles-based regulation, where the legislation specifies the desired outcome but not the means of achieving it. The draft legislation is very rules- and process-based. The draft legislation also carries forward the current incoherent approach to self regulation, where stock exchanges must obtain recognition from the Commission while other entities may be recognized. Parliament should fix these and other problems before anything is finalized.

What does this mean to me?
If you are a public company or a registrant, you should pay close attention to developments in Ottawa. Creating a national regulator is clearly a priority of the current government. The Liberals have indicated their agreement in principle, but not necessarily with the Panel’s specific recommendations. In particular, they may not support the recommendation that companies and registrants have the ability to opt into the federal regime.

If Parliament enacts the Panel’s recommendations, public companies and registrants in jurisdictions that do not opt in (at least Alberta, Manitoba and Quebec) will need to decide whether to opt in to federal regulation.

While imperfect, establishing one national securities regulator will make regulation and capital raising more efficient and effective. All capital market participants should support the implementation of the Panel’s recommendations as quickly as possible.