Many industry groups have long pushed for a national regulator. But now that one is in the works, how far should it reach?
The IIAC has been concerned that the proposed Capital Markets Stability Act (CMSA) imposed “undue regulatory burdens on capital markets participants.” Now that the CMSA’s been revised, the IIAC says in a comment letter that it’s “pleased” with the significant changes made — but it has further suggestions to make sure the CMSA is “cost-effective and avoids unintended consequences.”
The Department of Finance Canada’s revised consultation draft of the CMSA, released in May 2016, continues to focus on national data collection, systemic risk related to capital markets and criminal enforcement in the financial industry.
But while the new version takes into account some industry concerns about the proposed Act resulting in extra regulatory pressure on capital market participants, further amendments could be made, says the IIAC.
One positive change is the revised draft of the CMSA clarifies where there’s a need for new tools to manage systematic risks and ensure well-functioning capital markets. The IIAC says, “The proposed CMSA has been revised so that the broad term ‘integrity’ has been removed from the definition of ‘systemic risk related to capital markets’ in section 3, and a materiality test has been added” to measure such risks.
The IIAC notes that such a materiality threshold will help “limit the scope” of the Capital Markets Regulatory Authority’s powers. The materiality test included defines systematic risks as threats that are sufficiently large and that could have “a material adverse effect on the Canadian economy,” says the revised draft of the CMSA.
However, says the IIAC, it’s unclear whether and how the Authority intends to deal with foreign capital market intermediaries. “The scope of section 3 [of the CMSA] as it pertains to foreign-domiciled entities should be clearly outlined, and we suggest that foreign investment dealers be specifically excluded.”
The IIAC also has some concerns about the process for “the designation of a class of securities or derivatives as systemically important under section 20, or the designation of a systemically risky practice under section 22. While both sections outline the factors for consideration […], we request more details on the circumstances when the Authority would make such designations.”
The revised version of the CMSA also looks at whether the Authority should tackle criminal offenses. And, says the IIAC, “The inclusion of criminal offences in the proposed CMSA will better position the Authority to contribute to the investigation of capital markets criminal offences,” as long as federal and provincial provisions are streamlined.
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