The Canadian federal government has now released a draft of its proposed national Securities Act (the "Draft Act"). It has also referred the Draft Act to the Supreme Court of Canada for its opinion as to whether the Act is within the legislative authority of the Parliament of Canada - in other words, whether it is "constitutional". If implemented, the Draft Act would, among other things, establish a national Canadian securities regulatory authority (the "CSRA"). The governments of Québec and Alberta have filed court challenges in their provinces against the plan for a national securities regulator, and Manitoba has so far declined to endorse such a plan. All of the other jurisdictions appear to support a national approach to securities regulation.

If the Supreme Court finds that the Draft Act is constitutional, it is expected that the Government will move to have a final version of the Act enacted by Parliament and the CSRA established by 2012/13.

This Flash provides a high level overview of the Draft Act. Davies was pleased to have had the opportunity to provide comments to the Transition Office on an earlier version of the Draft Act.

Highlights from the Draft Act

Who will be subject to the Act?

The Draft Act provides for a voluntary regime - each province and territory would be entitled to "opt in" to the legislation.

Structure of the Act

The Draft Act is a "platform" style. It sets out fundamental principles and rules but leaves detailed requirements and exemptions to be set out in the regulations to the Act. Until the regulations are released, it will be difficult to assess the substantive differences between the Draft Act and existing provincial and territorial securities legislation. The Government has stated that the regulations (like the Draft Act) will be largely based on existing provincial securities regulation. If established, the CSRA would have the authority to make regulations, subject to a public consultation and publication process, and the consent of the Minister of Finance.

Establishment of the CSRA

The Draft Act would establish the CSRA as a self-funded, crown corporation with a board of directors appointed by the federal cabinet. The CSRA would report to parliament through the Minister of Finance and be comprised of two divisions; a regulatory division led by a chief regulator, and a securities tribunal that will conduct enforcement hearings and be led by a chief adjudicator.

Financial Stability and Scope of Authority

One of the stated objectives of the CSRA is "to contribute, as part of the Canadian financial regulatory framework, to the integrity and stability of the financial system." To support this objective, the CSRA would have the power to gather information from market participants and to share such information with other regulatory authorities in Canada or elsewhere for the purpose of contributing to the integrity and stability of the financial system.

The CSRA would have authority to regulate a broad range of market participants, including dealers, advisers, investment fund managers, exchanges, clearing agencies, SROs, credit rating organizations, trade repositories and auditor oversight organizations, as well as a broad range of instruments, including exchange traded and over the counter derivatives.

Enforcement

The Draft Act provides for securities-related criminal offences that are equivalent to those in the Criminal Code, such as securities fraud, market manipulation, prohibited insider trading and misrepresentation. These provisions would apply in all jurisdictions, including those that elect not to opt into the Act. Federal and provincial governments would have concurrent jurisdiction over these criminal offences, although the provinces will have a right of first refusal for prosecution of these offences. The CSRA would have increased powers to investigate securities-related crime.

Authored by Carol Hansell and Jason Saltzman.

If you have any questions regarding the foregoing, please contact Patricia Olasker (416.863.5551), Carol Hansell (416.863.5592) or Jason Saltzman (416.863-5518) in our Toronto office, Sylvain Cossette (514.841.6412), Neil Kravitz (514.841.6522) or Stéphane Eljarrat (514.841.6439) in our Montréal office for information on the enforcement provisions.

Davies Ward Phillips & Vineberg LLP, with over 240 lawyers, practises nationally and internationally from offices in Toronto, Montréal and New York and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and international clients.

The information and comments herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstance. For particular applications of the law to specific situations, the reader should seek professional advice.