Securities regulators move forward on harmonization project

(January 30, 2003) Canada’s securities regulators today released a concept paper fleshing out the details of an ambitious plan to harmonize and streamline the country’s securities laws. The Uniform Securities Legislation project includes a national registration system for advisors and a provision to delegate national decision-making to a single regulator.

Under the proposal, dozens of regulations would be consolidated under the Uniform Securities Act, allowing future changes to be made more quickly through the rule-making process, the Canadian Securities Administrators says.

“We’re harmonizing the Canadian system of securities regulation within a flexible framework that is able to adapt quickly to evolving market requirements,” says Alberta Securities Commission chair Stephen Sibold, who heads up the USL project.

Some of the changes are substantial, the CSA says, but most are well-advanced, previously announced initiatives.

The national registration proposal, sometimes referred to as a passport system, would require registrants to inform their local regulator that they want to do business in other jurisdictions and pay the appropriate fee. The CSA adds that the National Registration Database, scheduled to come online in March, would provide a streamlined method of submitting an application for registration in multiple jurisdictions.

Delegated decision-making, under which a provincial regulator could delegate a specific power to another regulator, could create a “virtually seamless” system of securities regulation, the CSA says, which would allow “one stop shopping” by industry participants.

The CSA also proposes tightening up the various definitions of a financial advisor into one general category, eliminating the current system, which it calls “confusing and duplicative.” Advisors who meet qualification, proficiency and capital requirements would be permitted to advise clients on investing based on client objectives and would have the authority to manage client portfolios.

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The USL proposal also provides for a civil liability regime for investors in the secondary market. The CSA’s civil remedies proposal, first announced in 1998, would permit action against companies who fail to disclose material information or release false statements.

The USL suggests adopting provisions recently proposed in Ontario, increasing maximum court fines for securities offences to $5 million and jail terms to five years. As well, fraud, market manipulation and engaging in unfair practices would be added to the general prohibitions contained in the various provincial securities acts. The blueprint also suggests giving securities regulators the power to impose administrative penalties, although specific amounts would be left up to the provinces.

Ontario Securities Commission chair David Brown applauds the proposals, saying they draw upon the best provisions from each of Canada’s provincial securities statutes. “The USL attempts to address the problems created by having multiple decision-makers,” he said in a statement. “Uniformity will reduce complexity and increase efficiency in Canada’s capital markets.”

The current system of 13 provincial and territorial regulators with their own sets of rules is “a red-tape nightmare” for Canadian companies, added Ontario Finance Minister Janet Ecker. “We must work to pursue streamlined regulations and more uniform laws to provide more protection from fraud, which will encourage more investment.”

Others are less supportive. British Columbia Securities Commission chair Doug Hyndman says the proposals don’t go far enough. “We think the uniform legislation should include much more streamlining and simplification,” he says. “If it fails to do so, we will have missed a golden opportunity unlikely to reappear for decades to come.” The BCSC is currently pushing its own securities deregulation project, focusing on a principle-based regime which would be less reliant on detailed rules.

Securities regulators in B.C, Alberta, Manitoba, Ontario and Quebec worked on the USL project. Comments are due by April 30. The CSA hopes to have a Uniform Securities Act ready to present to the provincial legislatures for approval by spring 2004.

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Are the USL proposals enough? Where could they be improved? Do the proposals “draw upon the best provisions of Canada’s provincial statutes” or are they missing a “golden opportunity”? Speak up in the “Free for All” forum of the Talvest Town Hall on Advisor.ca.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca

(01/30/03)

Doug Watt