Canadian Finance Minister Jim Flaherty [official website] on Wednesday introduced legislation [text; official backgrounder] that would establish a single national securities regulatory body to replace the current system managed by individual provinces and territories. The Canadian Securities Act would establish the Canadian Securities Regulatory Authority (CSRA) [fact sheet], replacing the current "passport" system, which allows provincial authorities to issue registration recognized nationwide, with a single national authority with voluntary provincial participation. According to Flaherty, the CSRA is also intended to foster competitive capital markets and protect investors from fraudulent practices. It will be run by a board of directors accountable to the Ministry of Finance [official website]. The legislation would also redefine securities-related criminal offenses that would apply even in provinces not participating in the CRSA and would give concurrent prosecutorial jurisdiction to the federal and provincial governments. Flaherty explained the need [press release] for the legislation, stating:
Canada is the only major industrialized country that lacks a national securities regulator. This step will strengthen the stability, integrity and effectiveness of the Canadian financial system ... [by] harmoniz[ing] existing legislation in the form of a single statute. ... It proposes significant improvements in terms of governance, adjudication, financial stability, and regulatory and criminal enforcement, and provides a wide scope of authority to regulate financial instruments and participants in capital markets.The legislation will be submitted to the Supreme Court of Canada [official website] to rule on the proposal's constitutionality [official backgrounder], a process that could take 10 to 24 months. Quebec Premier Jean Charest [official website] sharply criticized [Montreal Gazette report] the proposed legislation, stating that it would interfere with provincial jurisdiction and that his government would pursue a legal challenge in the Quebec Court of Appeal [officials website]. The governments of Alberta and Manitoba have also been critical of the legislation, prompting another court challenge from Alberta.
The legislation is based on the recommendations of a seven-member panel appointed by Flaherty, which concluded in January that the global financial crisis [FT backgrounder] increased the need for a national securities regulatory system. It comes as a culmination of the efforts of successive Canadian governments to form a single securities regulator. The global financial crisis has caused concern over securities regulations in other countries as well, prompting the US Department of Justice [official website] in April to open a criminal investigation [JURIST report] of Goldman, Sachs & Co. [corporate website] for possible securities fraud in mortgage trading. Earlier in April, the US Securities and Exchange Commission (SEC) [official website; JURIST news archive] filed civil charges [JURIST report] against Goldman Sachs. The SEC alleges that Goldman made misleading statements and omissions to investors in early 2007 in violation of the Securities Act of 1933 [text, PDF] and Securities Exchange Act of 1934 [text, PDF]. Also in April, the German government announced [JURIST report] that it was considering legal action against the company. Britain has indicated that it may also pursue legal action [Bloomberg report] after it found out the scope of the allegations contained in the SEC lawsuit.