Securities markets in Canada operate under a system of provincial regulation and supervision, with a total of 13 regulatory authorities. The four largest regulatory agencies in Canada, namely the Alberta Securities Commission, the Ontario Securities Commission, the Autorité des Marchés Financiers, and the British Columbia Securities Commission, supervise about 95 percent of the securities market. The International Monetary Fund (IMF), in a 2008 Financial Sector Assessment Program, based on a detailed assessment of securities regulation, concludes that Canada's regulatory framework for the securities market shows high levels of implementation of the International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation. It further notes that the regulatory framework for most of the areas covered by securities regulation is robust. Shortcomings were identified with regard to the regulation and supervision of collective investment schemes and enforcement, as well as coordination among the provincial regulators. Ontario and members of the Crawford Panel - an independent expert panel - are currently discussing a proposal with other provinces to establish a common securities regulator. The legal framework governing the securities market in Canada is mainly comprised of the 1990 Securities Act and its General Regulation, as amended in March 2008.

General Overview

The International Monetary Fund (IMF) conducted a Financial Sector Assessment Program (FSAP) in October 1999 of Canada's compliance with the International Organization of Securities Commissions (IOSCO) Objectives and Principles of Securities Regulation, and reported its findings in its 2000 Report on the Observance of Standards and Codes (ROSC). The IMF ROSC concluded that Canada was broadly or fully compliant with all of the IOSCO principles. Shortcomings regarding the complexity of federal/provincial regulatory arrangements, oversight of mutual funds, and resource limitations on the enforcement capacity of some securities commissions were being addressed. As a follow-up to the 2000 ROSC, the IMF's 2008 FSAP, based on a detailed assessment of securities regulation, found that "the regulatory framework for the securities market of Canada exhibits high levels of implementation of the International Organization of Securities Commissions' Principles" (p. 5). The report further notes that "the general preconditions necessary for the effective regulation of securities markets appear to be in place" (p. 9). Weaknesses were identified with regards to the regulation and supervision of collective investment schemes (CIS) and enforcement, as well as coordination among the provincial regulators.

The 2008 FSAP reported that securities markets in Canada operate under a system of provincial regulation and supervision, with a total of 13 regulatory authorities. The four largest regulatory agencies in Canada, namely the Alberta Securities Commission (ASC), the Ontario Securities Commission (OSC), the Autorité des Marchés Financiers (AMF), and the British Columbia Securities Commission (BCSC) supervise about 95 percent of the securities market. As noted on its website, the Canadian Securities Administrators (CSA) is a forum for the 13 securities regulators to coordinate and harmonize regulation of the Canadian capital markets. The Crawford Panel on a Single Canadian Securities Regulator was established in May 2005 by the minister responsible for securities regulation in Ontario. The Crawford Panel, which is independent from the government, aims to recommend a model for a common securities regulator. On June 7, 2006, the Panel released its final report, known as the Blueprint for a Canadian Securities Commission. According to the Institute of International Bankers' (IIB) 2007 Global Survey, all of the provinces and territories in Canada, with the exception of Ontario, have implemented a "limited passport system." The passport system aims to facilitate access to capital markets across Canada's 13 provinces and territories, with each province and territory maintaining its own regulator, laws, and fees. The IIB survey underlines that although Ontario collaborates with the passport provinces, it is only willing to sign onto the passport system if the later evolves into the creation of a common regulator. Ontario and members of the Crawford Panel are currently discussing the proposal with the provinces in order to establish a common securities regulator. The legal framework governing the securities market in Canada is mainly comprised of the 1990 Securities Act and its General Regulation, as amended in March 2008.

According to the 2008 U.S. Department of Commerce Country Commercial Guide report, investment in Canada's capital markets presents no problems to investors, as "markets are open, accessible, and without onerous regulatory requirements." The Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV), respectively the senior equities market and public venture equity market, are established within the TSX Group. Conversely, the Montreal Exchange (MX) specializes in derivatives. As stated in the IMF's 2008 FSAP, the TSX is the 7th largest equity market by market capitalization, amounting to US$1,701 billion as of December 2006. The IMF report further notes that cross listing between the TSX and the U.S. market is important, and concerns about 12 percent of total TSX-listed issuers in 2006.

The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral Memoranda of Understanding. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. As stated in the IMF's 2008 FSAP, the four largest regulatory agencies in Canada, namely the ASC, the OSC, the AMF, and the BCSC are signatories to the MMoU and are ordinary members of IOSCO.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

CP

This principle is "broadly implemented" according to the IMF's 2008 FSAP. Principles relating to the regulator were already rated as "broadly compliant" in 2000. At the time of the 2000 assessment, there was a lack of clarity with regards to the roles and responsibilities of the regulatory agencies in the context of the federal/provincial regulatory structure. According to the IMF's 2008 FSAP, the responsibilities of the regulatory agencies are now "clearly stated in the law" (p. 12). While the 13 regulatory agencies share the same core objectives and responsibilities, regulations to address these responsibilities differ between the jurisdictions Specific requirements for market participants and the level of investor protection are also unique to each province. The IMF report notes, however, that coordination between provincial regulators under the umbrella of the CSA still needs improvement.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

FC

In its 2000 ROSC, the IMF rated principles relating to the regulator as "broadly compliant." Following the 2000 assessment, the IMF's 2008 FSAP found that this principle has been implemented. Per the same report, regulatory agencies of the largest jurisdictions are "independent and fully self-funded by levies imposed on market participants" (p. 12). Moreover, a vigorous system of accountability has been established, which includes ministerial approval of the budget, annual audit of financial statements, an annual report of activities, and judicial review. The IMF report notes that regulators of the smallest provinces in Canada are still part of, and fully funded by, the government.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

CP

In its 2000 ROSC, the IMF stated that regulatory agencies had adequate powers and capacity, and rated principles relating to the regulator as "broadly compliant." At the time of the 2000 assessment, while self-funding improved the capacities of the largest securities commissions, issues remained regarding the adequacy of the resources available for commissions that did not yet have self-funding status. In its 2008 FSAP, the IMF notes that regulatory agencies of the largest jurisdictions "have sufficient resources and skilled personnel to carry out their responsibilities" (p. 5). However, while regulatory agencies have sufficient powers to regulate market participants, this principle is only given a "partly implemented" rating by the 2008 FSAP due to the lack of power over the registration of CIS operators.

4. The regulator should adopt clear and consistent regulatory processes.

FC

In its 2000 ROSC, the IMF rated Principles relating to the Regulator as "broadly compliant." Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been implemented. Per the same report, the largest regulatory agencies are subject to a high degree of transparency.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

FC

In its 2000 ROSC, the IMF rated principles relating to the regulator as "broadly compliant." Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been implemented. Per the same report, the regulatory agencies have developed codes of ethics, and established reporting obligations on investment activities. Mechanisms to monitor compliance have also been put in place.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

FC

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles of self-regulation. The IMF report noted that while Canada had a well-developed framework for Self-Regulatory Organizations (SROs), their formal status and oversight arrangements differed among the provinces and territories. Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been implemented. Per the same report, regulatory agencies rely largely on SROs for the regulation and supervision of the market and its participants. SROs include the Investment Dealers Association of Canada (IDA), the Mutual Fund Dealers Association of Canada (MFDA), the Market Regulation Services (MRS), the MX, and the Chambre de la Sécurite Financière (CSF).

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

CP

This principle is "broadly implemented" according to the IMF's 2008 FSAP. Principles of self-regulation were already rated as "broadly compliant" in 2000. Per the same report, SROs must follow an authorization regime based on eligibility criteria, including integrity, financial viability, capacity, governance, and fair access. Moreover, SROs are subject to oversight through off-site reporting, on-site inspections, and regular meetings.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

FC

As noted in the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for the enforcement of securities regulation. Since 2000, according to the IMF's 2008 FSAP, this principle has been implemented and the regulatory agencies have "broad investigative and surveillance powers over regulated entities" (p. 13).

9. The regulator should have comprehensive enforcement powers.

FC

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for the enforcement of securities regulation. The IMF report noted that the largest self funded regulatory agencies were "still in the process of reaching target levels in the enforcement area," while other regulatory agencies were pursuing self funding status. Since 2000, according to the IMF's 2008 FSAP, this principle has been implemented and the regulatory agencies have "broad enforcement powers" (p. 13). The IMF report highlights that in the case of the AMF, enforcement powers are exercised by the Bureau de Décision et de Révision en Valeurs Mobilières.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

CP

As stated in the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for the enforcement of securities regulation. The IMF report noted that a number of regional securities commissions were unable "to impose fines or recover the costs of an administrative proceeding." Since 2000, as stated in the IMF's 2008 FSAP, while the regulatory agencies have established "a credible system of supervision of the market and market participants" (p. 13), further improvements are needed in the area of enforcement. The IMF report rates this principle as "partly implemented," and recommends developing "a coordinated approach to enforcement between criminal and securities law enforcement authorities" (p. 13).

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

FC

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for cooperation in regulation. The IMF report noted that while the largest regulatory authorities had concluded MoUs for information sharing, there were limitations on the sharing of information with foreign regulators. Canadian regulatory agencies also shared information between each other on an informal basis. Following the 2000 assessment, this principle has been implemented, according to the IMF's 2008 FSAP. Per the same report, even in the absence of MoUs, "the regulatory agencies have broad authority to share information with both domestic and foreign regulators" (p. 13).

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

FC

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for cooperation in regulation. The IMF report noted that while the largest regulatory authorities had concluded MoUs for information sharing, there were limitations on the sharing of information with foreign regulators. Canadian regulatory agencies also shared information between each other on an informal basis. Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been implemented, and the four largest regulatory agencies in Canada, namely the ASC, the OSC, the AMF, and the BCSC are signatories to the MMoU, and ordinary members of IOSCO.

The IOSCO MMoU is based on the thirty IOSCO Principles adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

FC

As stated in the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for cooperation in regulation. Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been implemented. The IMF report notes that "the regulatory agencies have authority to assist foreign regulators in obtaining information that is not in their files" (p. 13).

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

FC

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for issuers. Shortcomings remained regarding the "level of current real compliance and enforcement activity in the area of financial reporting and corporate disclosure". Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been implemented. The IMF report notes that "issuers are subject to disclosure requirements at the moment of authorization and on an ongoing basis" (p. 14). Moreover, the frameworks for issuers in Ontario and Quebec have disclosure obligations for "substantial and insider holdings" (p. 33).

15. Holders of securities in a company should be treated in a fair and equitable manner.

FC

As noted in the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for issuers. The IMF report noted that minority shareholders' rights were protected under corporate and securities law. Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been implemented. The 2008 IMF report notes that while most issues related to shareholders' rights have not been harmonized through a National Instrument; they are treated in a similar manner in all provinces. Moreover, the frameworks for companies in Ontario and Quebec have explicit provisions dealing with the fair treatment of shareholders.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

FC

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for issuers. Shortcomings remained regarding "the adequacy of the disciplinary procedures for auditors." Following the 2000 assessment, as stated in the IMF's 2008 FSAP, this principle has been implemented. The IMF report notes that issuers are required to submit financial information in line with the Canadian Generally Accepted Accounting Principles (GAAP). Moreover, audits are subject to Canadian Accounting Standards. As of 2011, according to the February 2008 update available from the Deloitte & Touche IAS Plus website, the Canadian Accounting Standards Board will require the use of International Financial Reporting Standards (IFRSs), replacing the Canadian GAAP for publicly accountable enterprises, including listed companies and other profit-oriented enterprises. Per the same report, private companies, and not-for-profit organizations will have the permission, but will not be required to adopt IFRSs in 2011.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

CP

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for CIS. In its 2008 FSAP, the IMF notes that this principle is only "partly implemented" due to the lack of registration of CIS operators. Moreover, on-site inspections are not conducted on a regular basis for the oversight of CIS operators.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

CP

This principle is "broadly implemented" according to the IMF's 2008 FSAP. Principles for CIS were already rated as "broadly compliant" in 2000. Despite restrictions on related party transactions at the time of the 2000 assessment, there were no requirements regarding the structure or governance of the CIS. Since 2000, as stated in the IMF's 2008 FSAP, the disclosure in the prospectus of the CIS' legal form and structure is required. Moreover, provisions on separation of assets are in place. The IMF report notes however that not all CIS are required to have a custodian.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

FC

As stated in the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for CIS. Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been "implemented." The IMF report notes that "CIS are subject to disclosure obligations at the moment of authorization and on an ongoing basis" (p. 14). Moreover, the regulatory agencies have established a system to review prospectuses.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

FC

As noted in the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for CIS. Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been implemented. The IMF report notes that "CIS are required to value their portfolios at fair value" (p. 14).

21. Regulation should provide for minimum entry standards for market intermediaries.

FC

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for market intermediaries. Following the 2000 assessment, as stated in the IMF's 2008 FSAP, this principle has been implemented. There are three main categories of securities intermediaries in Canada: investment dealers, mutual fund dealers, and advisors. The first two are required to be members of an SRO (IDA or MFDA). On the other hand, mutual fund dealers in Quebec are required to be members of the CSF. The IMF report notes that "dealers and advisors are subject to a registration regime based on eligibility criteria that address integrity, financial viability, capacity, internal controls, and risk management" (p. 14). Moreover, on-site inspections are conducted periodically for the oversight of market intermediaries.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

FC

As stated in the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for market intermediaries. Following the 2000 assessment, according to the IMF's 2008 FSAP, this principle has been "implemented." The IMF report notes that "market intermediaries are subject to minimum capital requirements as well as capital adequacy requirements" (p. 14). Moreover, the IDA and the MFDA have established an early warning system.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

FC

According to the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for market intermediaries. The IMF report noted that some dealers in certain jurisdictions were "not subject to any systematic compliance review activities by a regulatory authority." Following the 2000 assessment, as stated in the IMF's 2008 FSAP, this principle has been implemented. The IMF report notes that "IDA and MFDA rules contain detailed obligations on internal control and risk management as well as on business conduct" (p. 15).

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

FC

As noted in the IMF's 2000 ROSC, Canada was "broadly compliant" with principles for market intermediaries. Following the 2000 assessment, as stated in the IMF's 2008 FSAP, this principle has been implemented. The IMF report notes that "the regulatory agencies have at their disposal a set of mechanisms to prevent and deal with a failure" (p. 15).

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

FC

This principle has been implemented, according to the IMF's 2008 FSAP. Principles for the secondary market were already rated as "fully compliant" in 2000. In its 2008 FSAP, the IMF notes that "exchanges are subject to an authorization regime based on eligibility criteria that include integrity, financial viability, and capacity" (p. 15).

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

CP

According to the IMF's 2000 ROSC, Canada was "fully compliant" with principles for the secondary market. Since 2000, while the MRS has developed an automated surveillance system to detect unusual transactions and insider trading, the automated surveillance system of the MX is still under development. Moreover, a MoU has not been established between the MRS and the MX so far. Hence this principle is only given a "broadly implemented" rating by the IMF's 2008 FSAP.

27. Regulation should promote transparency of trading.

FC

This principle has been implemented, according to the IMF's 2008 FSAP. Principles for the secondary market were already rated as "fully compliant" in 2000. In its 2008 FSAP, the IMF notes that "post-trade information is available to the public for all markets" (p. 15). Moreover, the TSX and the MX provide some pre-trade transparency.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

FC

This principle has been implemented, according to the IMF's 2008 FSAP. Principles for the secondary market were already rated as "fully compliant" in 2000. In its 2008 FSAP, the IMF notes that "the Universal Market Integrity Rules contain provisions that prohibit market manipulation and other unfair practices" (p. 15). The MX has also established trading rules to cover manipulation and unfair trading practices.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

FC

This principle has been implemented, according to the IMF's 2008 FSAP. Principles for the secondary market were already rated as "fully compliant" in 2000. As noted in the IMF's 2008 FSAP, the Canadian Clearing and Depository Services and the Canadian Derivatives Clearing Corporation have established mechanisms to ensure the proper management of large exposures.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

FC

According to the IMF's 2000 ROSC, Canada was "fully compliant" with principles for the secondary market. This principle was not assessed in the IMF's 2008 FSAP, as a Committee on Payment and Settlement Systems/IOSCO Assessment was conducted separately.