New policy helps Ontario interact with passport provinces

For most provinces, the passport system is a decent alternative to a single securities regulator, but not for Ontario, the only jurisdiction refusing to sign on to the new system.

Instead of scrapping the plans to break down provincial regulation barriers, the Canadian Securities Administrators announced Friday that it has found a way to include Ontario in its passport plans.

Two new proposed policies, 11-202 and 11-203, allow the province access to other jurisdictions and vice versa through interfaces, while essentially abolishing the mutual reliance review system that’s in place today.

“The proposed policies will significantly enhance the effectiveness and efficiency of the securities regulatory system for market participants who want to gain access to the capital markets in both passport jurisdictions and Ontario,” says Jean St-Gelais, chair of the CSA and president and CEO of the Autorité des Marchés Financiers.

It’s not the ideal situation, says Doug Hyndman, chair of the CSA passport steering committee and head of the BCSC, but it’ll have to do. “We’d be happier if Ontario would join the system, but given that they’re not, we’ve done the best we can to make this as efficient as possible.”

Still, it does seem as if Ontario’s getting a free ride. If an Ontario company wants to file a prospectus in another province, all it has to do is submit its documents to the OSC, and the rest is taken care of. And with one small extra step, a non-Ontario company can file with OSC. So why reward Ontario for refusing to sign on to the passport plan?

“We could have said too bad, Ontario, for not participating, so we could make it harder for Ontario companies to get access to the market elsewhere,” says Hyndman, who adds that some might look at these policies and say Ontarians are getting the better end of the deal. “We didn’t think that was the responsible thing to do. We thought we owed it to investors and the market generally to make the market as efficient as we could.”

Hyndman says he hopes that these policies will convince Ontario that the passport system is a worthwhile venture. “Once we demonstrate the efficiency of the system, the Ontario government and the OSC will hopefully see that it makes sense for them to participate as well.”

If the OSC doesn’t wise up to the benefits of the system, the CSA could change the rules and make it harder for the province to interact with other jurisdictions. Hyndman says that the securities administrators will review these policies in two years if the OSC hasn’t joined on, though that doesn’t mean anything will change.

While the proposed rules relate mostly to Ontario, they also touch upon foreign market participants. If these new policies are implemented, non-Canadian companies will receive the same benefits as any local business in the jurisdiction — so if, for example, a Californian company submits a prospectus in B.C., it will have access to the rest of the country.

The CSA plans to implement the prospectus, continuous disclosure and discretionary exemption parts of the passport system in March, while the regulation aspect should be launched in June 2008.

Filed by Bryan Borzykowski, Advisor.ca, bryan.borzykowski@advisor.rogers.com