Proposed federal securities legislation moves Canada a step closer to capital market regulation at a national level

On May 26, 2010, the federal Department of Finance released its proposed Canadian Securities Act (the Act). The Act builds upon the Report released last year by the Expert Panel on Securities Regulation and represents the federal government's proposal for a harmonized national regime to govern capital markets. Following decades of deliberation by various panels and committees, publication of the proposed Act by the Canadian Securities Transition Office evidences this government's strong commitment to the establishment of a national securities regime and regulator.

The case for regulation of capital markets at a national level is set out in the preamble to the Act. Among other things, the preamble highlights the need to be competitive and consistent, enhance the integrity and stability of the Canadian financial system, have a comprehensive and coordinated enforcement regime and promote Canada's interests at a national and international level. While the intent is to create a harmonized federal scheme for securities regulation, provincial participation is voluntary and the Act will only apply to those jurisdictions that choose to take part in the federal scheme. As we discussed previously, the draft Act is only a proposal at this stage, and has been referred to the Supreme Court of Canada for a ruling as to its constitutionality.

Drafted as a broad "platform", the Act provides the basic framework for major areas of securities regulation, with much of the detail to be contained in regulations and rules. The Act is based in large part on existing provincial legislation in the areas of prospectus and registration requirements, continuous and timely disclosure, regulation of take-over bids and imposition of primary and secondary market civil liability. While major substantive changes are generally not intended to be reflected in the legislation itself in these areas, significant developments are proposed in other areas, including recognition or designation of self-regulatory organizations and other similar entities as well as the regulation of derivatives, market conduct and securities-related offences and penalties. The Act also introduces a bifurcated structure for administration and adjudication by separating the Authority's regulatory division from an independent adjudicative division. In addition to substantive changes that may be reflected in the Act or the rules themselves, regulation of capital markets at a federal level may also present the potential for broader extra-territorial application of Canadian securities laws given the federal government's broader power over trade and commerce.

Structure and governance of the Canadian Securities Regulatory Authority

The Act establishes the Canadian Securities Regulatory Authority (the Authority), which will be responsible for administration of the new regime. The stated principles of the Act are to provide investor...