A man walks past an old Toronto Stock Exchange (TSX) sign in Toronto, June 23, 2014.Mark Blinch/Reuters
The federal government has revised a controversial new piece of legislation that would have included pension funds among the key financial players to be governed by a new regulator overseeing systemic risks in Canada's capital markets.
The federal Finance Department issued a new draft of legislation Thursday that will give a proposed new national securities regulator broad powers to oversee so-called system risks that can threaten the stability of Canada's stock markets.
The original draft of the legislation, published in 2014, faced criticisms for giving the new regulator broad and sweeping powers to impose operating conditions on an array of players deemed to be "intermediaries" in the capital markets, including pension funds, investment funds and securities dealers.
The new version of the Capital Markets Stability Act (CMSA), which is open for public comment until July 6, no longer lists any categories of organizations deemed to be "systemically important" in the system, including intermediaries such as pension funds as well as credit rating organizations, clearing houses, trading facilities and other players in the markets.
Instead, the new regulator will have broader powers to regulate anyone who is involved in certain practices or is dealing in certain products that have the potential to have a material adverse effect on the Canadian economy.
In a backgrounder document, the Finance Department said international best practices have shifted away from regulation that is based on specifically identified entities, instead favouring a broader view of regulation that focuses on any risks posed by activities and products.
"For these reasons, the revised consultation draft CMSA no longer includes the power to designate trading facilities, clearing houses, credit rating organizations and capital markets intermediaries as systemically important," the department said.
"Potential regulation in respect of systematically important products and systematically risky practices will apply to anyone who deals in those prescribed products or engages in such practices."
The act is one of two new proposed pieces of legislation that would govern the work of a new federal-provincial securities regulator, which would be given dual responsibility for overseeing capital markets and managing systemic risks in Canada's markets.
Pension plans were vocal opponents of the original systemic-risk legislation, arguing they did not fit within the mandate of the act, which is intended to control organizations in the business of trading securities. They said they are in the business of paying pensions to their members, and already operate under other regulations requiring conservative investment strategies.
The government said the new draft of the act "responds constructively to public comments received during the initial consultation."
Janet McFarland