By Grant Cameron
A decision by the Canadian Securities Administrators (CSA) to implement
the next phase of the passport system is generating praise in some
industry circles and pessimism in others.
Supporters say it will streamline the securities regulation process.
Critics say it will lead to watered down rules and substantial
differences in regulatory scrutiny across the country.
The passport system, a regulatory framework which allows each
jurisdiction to maintain its own securities commission and recognize
others, much to the dislike of the federal and Ontario governments, has
been a contentious issue for those in the nation’s securities industry.
The CSA moved the system further along on March 17 by adopting a new
rule and policies that outline how it will work and how participants
will deal with Ontario, which has rejected the system.
Jean St-Gelais, chair of the CSA and president and CEO of the Autorité
des marchés financiers (Québec), said the new rule and policies are a
step forward for securities regulators.
“The passport rule together with the national policies will simplify the
regulatory approval process and benefit businesses and investors in all
provinces and territories,” he said. “This phase of passport will give
issuers access to Canada’s capital markets by allowing them to deal with
only one regulator and one set of harmonized requirements.”
The new rule allows someone to clear a prospectus or obtain a
discretionary exemption from their home securities regulator, and have
it automatically apply in all other passport provinces and territories.
The new policies, meanwhile, set out the processes for filing and
reviewing prospectuses and exemptive relief applications. The policies
also outline how market participants from passport jurisdictions will
gain access to the Ontario market.
Manitoba Finance Minister Greg Selinger, who is chair of the Council of
Ministers for Securities Regulation, said the CSA’s announcement is good
news because it will streamline the process and provide a single window
of access to capital markets for companies.
“It’s a major step forward because it provides a single door of entry
and a single set of harmonized rules. It’s a big improvement over the
old days when things were different in most jurisdictions.”
One benefit is that a company won’t have to go to three or four
provinces when a security is being issued, Selinger said.
“They can go to their own securities regulator and if it’s accepted
there it’s accepted everywhere. The prospectus, or the issuer, is
treated equally everywhere they go. It also helps the consumer in terms
of what protections they have and what rules they’re following.”
However, Steve Salterio, a chartered accountant and business professor
at Queen’s University in Kingston, Ont. isn’t buying into the passport
system. He believes it’s unworkable.
“I think the passport system, as it’s currently conceived, is a
fundamental step backwards. I’m very glad that Ontario isn’t on board.”
Last year, Salterio studied Canada’s decentralized system of securities
regulation and found that it wasn’t making the grade. His research also
showed there is a substantial difference in the level of regulatory
scrutiny by various securities regulators across the country.
“I have fundamental concerns about the passport system because it
assumes all regulators are created equal. But there’s a different level
of enforcement across the country. Hence, one would also infer there’s a
different level of scrutiny when one is making application for
For example, said Salterio, New Brunswick has only a half dozen
publicly-traded companies and several years might pass before regulators
there are required to do a registration, whereas Alberta might register
three or four publicly-traded companies a week.
“The expertise differences might be quite large.”
According to Salterio, the solution is to replace the current fragmented
system with a single national regulator and enforcement agency that has
the power to take care of business across the country. That’s also the
preference of the Ontario and federal governments.
“My position is that Ontario shouldn’t be on board and neither should
Alberta or Quebec,” Salterio said. “They’re the three best regulators we
have in the country and, if anything, the three of them should form a
united front and say: ‘Hey, we’re the folks who are really in the
business of doing regulations and we have the resources and we’ll be the
“The reality is the markets are in these provinces and these provinces
have jurisdiction over these markets and they need to exercise their
rights to regulate the markets that are in their provinces. We have to
stop this watering down of things in order to get everybody on side.”
Salterio believes the passport system will merely weaken control
standards across the country.
“Ontario has made the right decision, in my mind, as the location of
Canada’s largest capital market, to say: ‘No, we’ve got the largest
capital market in the country and we’ve got to make sure that companies
that are going to be traded on the largest capital market meet the
With Ontario and the passport jurisdictions seemingly at loggerheads,
the question looming, then, is what happens next?
The other provinces and territories are forging ahead with the passport
system, and in good faith are allowing decisions made by the Ontario
Securities Commission to be recognized by regulators in their
jurisdictions, but Ontario is still sitting on the sidelines and has
shown no signs of reciprocating.
However, Selinger is still holding out hope that Ontario will come on
“There’s been a lot of rhetoric about a common securities regulator. Our
approach has been to put our heads down and just work on making things
better rather than debating the perfect model. We decided as a group of
provinces, rather than fight with the federal government about the
perfect model, let’s just make things better and see where it takes us.”
Passport jurisdictions have held out the olive branch by recognizing
regulatory decisions made by Ontario, Selinger said.
“We’ve given them the right to issue into our jurisdiction. We did that
as a positive gesture to show we want to be co-operative.”
With Quebec on board, Selinger doesn’t see why Ontario can’t follow
“If Quebec can take a civil code system and make it harmonized, why
couldn’t Ontario? Quebec has taken its system and blended it with the
rest of Canada, so it shows if there’s a will there’s a way.”