FAIR Canada supports the proposed national securities legislation that will establish the Canadian Securities Regulatory Authority (CSRA) and has been granted leave to intervene in the Canadian Government’s reference to the Supreme Court of Canada on the constitutionality of the proposed national legislation.   

Current System Not Providing Adequate Investor Protection

“The announcement by Finance Minister Flaherty of the proposed Canadian Securities Act and the Supreme Court of Canada (“SCC”) reference are major steps forward,” said Ermanno Pascutto, Executive Director of FAIR Canada.  “We have debated the establishment of national securities regulator for the past five decades.  Despite the numerous reports and compelling arguments in favour of a national regulator, limited progress has been made. We believe that championing a national commission will serve the interests of Canada and investors in the long-term.”

FAIR Canada’s primary concern is whether a national commission will provide better and more consistent investor protection across Canada. “The current balkanized system of provincial and territorial regulators has simply not delivered an adequate level of investor protection for Canadians,” said Mr. Pascutto.  “The current system with 13 provincial and territorial regulators favours consensus amongst regulators at the expense of the protection of retail investors.  In practice, this means that policy initiatives that could better protect retail investors face unacceptably long delays and are typically watered down, if they are pursued at all; even worse, individual provinces (especially the larger provinces) can and do simply “veto” policy change.  This precludes serious discussion at the national level of issues that are particularly sensitive to some jurisdictions and sacrifices sound regulatory policy for the benefit of specific industries and specific provinces.”

Decentralized Regime

FAIR Canada is also pleased that the federal Government has committed to an agency with a strong network of local offices which are authorized and empowered to make key decisions that reflect local market needs.  “Provincial commissions have been sensitive to local issues and local market conditions,” said Mr. Pascutto.  “The Chinese have a saying, ‘the mountains are high and the emperor is far away.’ A national securities commission with most of its resources located in Ottawa or Toronto runs the risk of not being effective in all regions of the country.  The ‘local touch’ must be preserved with a meaningful presence in each part of Canada.  A decentralized national commission is needed in a country like Canada, which is geographically vast and has distinct regional characteristics.”

Voluntary Regime

FAIR Canada welcomes the willingness of the federal government to work collaboratively with the provinces and territories through a voluntary regime that provides provinces and territories with the option of being part of the regime or retaining their existing provincial regulator.  Under the federal proposal, Quebec and Alberta (who are challenging the federal initiative in the courts) can choose to keep their existing provincial regulation.

While FAIR Canada’s Board of Directors generally supports the establishment of a national commission, the support was not unanimous.  While the Board is of the view that the current system does not deliver an adequate level of investor protection, not all members were convinced that a federal commission will result in improved investor protection.

Recommendations to Improve National Commission

Although FAIR Canada is generally supportive of the proposed legislation, it nonetheless has a number of concerns.  “We believe that a statutory duty for advisors to act in the best interests of clients is a critical component of investor protection,” said Mr. Pascutto.  At present, there is no explicit requirement in the legislation that registered persons must act in the best interests of clients.  The proposed national regulator needs to have a clear vision and mandate of putting investors first, and must make investor protection its top priority. 

There continues to be concurrent jurisdiction, for securities law crimes, between the Federal and Provincial Attorneys General and the proposed CSRA. FAIR Canada recommends the establishment of a specialized “Financial Markets Fraud” Division under the Attorney General of Canada focused on the prosecution of securities and other financial crimes.

“Criminal prosecution of securities crimes requires specialized expertise together with many years of experience. In order to build such a capacity, we believe that there should be a specialized “Financial Markets Fraud” Division at the Attorney General of Canada focused on the prosecution of securities and other financial crimes” said Mr. Pascutto. “To the extent that the Attorney Generals of the provinces wish to prosecute securities crimes, they should commit to developing a similar expert and experienced team under the provincial AG.”

Intervenor Status in SCC

In July 2010, FAIR Canada applied for intervenor status in the Supreme Court of Canada reference. FAIR Canada believes that it can provide a unique perspective to the Supreme Court, as the leading national investor rights organization in Canada. Last month, the Supreme Court of Canada granted intervenor status to FAIR Canada.  Intervenors must file their evidence with the SCC by October 29, 2010.  The hearing before the SCC is scheduled for April 13-14, 2011.