Progress Continues Toward Cooperative Capital Markets System

Progress toward a quasi-national securities regulatory system in Canada is continuing. The participating provinces and territory—Ontario, British Columbia, Saskatchewan, New Brunswick, PEI and the Yukon—have published a revised draft of the harmonized provincial Capital Markets Act and a significant number of related rules and policies. Additional rules and policies that will complete the package are still to come.

Implementation of the cooperative system is targeted for 2016. Quebec and Alberta's opposition to a national securities regulator has led some market participants to question the merits of moving forward with just six participating jurisdictions. Alberta's participation would be especially welcome given that it ranks as Canada’s second-largest capital market after Ontario, but the new Alberta government’s stance on the matter is not yet clear. This recently released package of detailed information should allow for a more thorough assessment of the proposed system by the Alberta government and all market participants.

What You Need To Know

• The transition to the cooperative system should not fundamentally change how Canadian public companies raise capital, engage in M&A and other significant transactions, and fulfill their ongoing disclosure and governance obligations.
• The published regulations do, however, include some notable departures from the status quo; among them is an expansion of insider trading prohibitions, protection for whistle-blowers, liability of directors and experts for misleading disclosure in private placement documents, and heightened regulation of U.S. OTC issuers.
• The interface rules linking participating and non-participating jurisdictions will be crucial, particularly in areas where the new regulatory regime is not in harmony with existing national instruments that have been adopted across Canada. Once the interface rules are published, market participants must critically assess the new system’s potential to be more seamless and efficient than the current system. The focus here should be on long-term benefits, since short-term inefficiencies and disruption will inevitably result from such a major regulatory transition.
• Revised federal legislation dealing with systemic risk has not been published, but it may be possible to move forward with the provincial/territorial aspects of the cooperative system before all federal matters are settled.

Comments on these materials are due December 23, 2015.