CSA proposes enhanced enforcement powers for regulators

(December 16, 2003) Nearly two years in the making, draft legislation proposing uniform securities laws that would apply across the country was released today by the Canadian Securities Administrators (CSA), the umbrella group for Canada’s provincial and territorial securities regulators. The draft contemplates stiffer penalties for securities law offenders and would give regulators the power to make decisions orders of the court.

In its most basic form, the legislation is an attempt to harmonize and streamline securities laws, the CSA said in a release today. It focuses on “one-stop” regulation, which would allow provinces to delegate decision-making powers to another regulator or to adopt decisions from another regulator.

“Today’s publication is an achievable, practical and substantial contribution to the ongoing debate on reform of our system of securities regulation,” said CSA chair Stephen Sibold. “Uniform securities laws would provide significant benefits to participants in Canada’s capital markets.”

But the Uniform Securities Act also includes a number of reforms, the CSA says, based on “well advanced and debated initiatives.”

The CSA says that its proposals “strengthen the regulators’ oversight powers by giving them the ability to order, after a hearing, a person to comply with a recognized entity’s decisions, policies and other similar instruments.”

Regulators, including self-regulatory organizations, could also file a copy of a decision or a settlement agreement with the court so that it can be enforced as though it were a judgment of the court.

The consultation draft’s tougher penalty provisions are based on legislation passed, but not proclaimed, in Ontario. It provides for fines of up to $5 million and jail terms of up to five years for securities laws offenders.

However, the act also contemplates even higher fines for specific offences such as insider trading, front-running or tipping: up to triple the amount of profits made or losses avoided.

In addition, a court could order additional compensation for investors who have suffered losses and could force offenders to repay any illegal gains.

The CSA refers to the Uniform Securities Act as “platform” legislation, containing fundamental principles of securities laws. Detailed rules would be added later.

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That applies to the issue of registration. “Details regarding the manner of applying for registration, registration categories and the criteria for obtaining registration will be contained in a uniform rule,” the CSA says.

The draft legislation does not mention the idea of a passport system, which would allow registered advisors to operate in other provinces through a mutual recognition process. A provincial finance ministers’ steering committee is working on details of such a system. And Sibold has also come out in support of the idea, saying recently that regulators are working with the provinces for a “quick win” in this area.

Along with the model act, the CSA today also published a model administration act for Alberta, based on that province’s current securities laws.

The CSA will accept comments on the draft legislation up to March 16, 2004. The final version of the act is expected to be tabled by the country’s provincial and territorial governments in 2005.

A second major securities regulatory initiative is also about to see the light of day. The federally appointed wise persons committee has presented its report to the federal finance minister and will publicly release it on Wednesday in Vancouver.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(12/16/03)

Doug Watt