The federal government and seven provinces and one territory are shutting down the organization charged with creating a national securities regulator due to waning political support for the project in jurisdictions such as Ontario and British Columbia.
The federal Finance Department will announce as soon as Thursday it is closing the five-year-old Capital Markets Authority Implementation Organization and laying off its staff, according to two sources working on the project. The Globe and Mail is not identifying the sources because they are not authorized to speak for the government or CMAIO.
Canada is the only G20 country without a national securities regulator. Each province and territory is responsible for overseeing its own capital markets. Former federal finance minister Jim Flaherty championed the concept of a single regulator when the Conservatives were in power. The federal Liberals picked up the baton after the 2015 election, committing $30-million to the CMAIO in 2016, along with tens of millions of dollars for programs meant to win support for the project from the provinces.
The CMAIO was created to design and build a new co-operative capital markets regulatory system that provinces and territories could voluntarily join. The goal was to streamline regulations to better protect investors, foster efficient capital markets and manage systemic risk while preserving the strengths of the current system. Since it was launched in 2016, B.C., New Brunswick, Nova Scotia, Ontario, Prince Edward Island, Saskatchewan, Newfoundland and Labrador and Yukon signed on. Quebec and Alberta oppose the concept and never joined. Nunavut and Northwest Territories did not join either.
As subsequent elections brought in new provincial leaders, regimes such as the NDP-led government in B.C. and the Ontario Conservatives pulled away from the idea, opting instead to reform provincial regulators.
The CMAIO’s federal funding is running out – the organization spent $4.4-million in 2020 and has a March 31 fiscal year-end. Over the past year, the CMAIO said it reduced costs by cutting fees it pays to directors, halting recruiting and delaying work on some initiatives. In recent weeks, the two sources said, the Finance Department, in consultation with its counterparts in the seven provinces and Yukon, decided to close the organization.
Senior CMAIO executives, including chief executive officer Kevan Cowan, are being laid off, the sources said. Mr. Cowan is a former head of the Toronto Stock Exchange. Staff members who were seconded to the project by provincial regulators are returning to their old jobs. When the organization was launched, the CMAIO projected it would eventually have 1,000 employees.
Federal Finance Minister Chrystia Freeland and her department still back the idea of a pan-Canadian securities regulator, the sources said, but recognize the concept has minimal popular support in the midst of a pandemic and ahead of a potential federal election that could hinge on results in Quebec. On Wednesday, spokespersons for CMAIO and Finance Department declined to comment.
In 2018, the Supreme Court of Canada unanimously ruled in a challenge from Quebec that the federal government has the constitutional authority to create a regulator. After the ruling, law firm Davies Ward Phillips & Vineberg LLP said in a report: “While the legal roadblocks to a co-operative national securities regulator have now been cleared, it remains to be seen if sufficient political will exists to make a co-operative regime successful in Canada.”
Industry groups, including the Business Council of Canada and the Canadian Bankers Association, have consistently backed the plan for a national securities regulator. When the CMAIO was launched, the Investment Industry Association of Canada said the project “signals an end to the archaic and fragmented patchwork.”
In 2003, a federal government commission led by B.C. energy executive Michael Phelps concluded there was a compelling case for a national regulator, as it would increase investor protection and make it easier for companies to raise money. “It’s hard to find any excuse for Canada being the only advanced industrialized country with a fractured approach to capital markets regulation,” Mr. Phelps said at the time. “There’s no long-term sustainability to our current model of regulation.”
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