Description Powers
The legal framework for the four agencies provide them with sufficient powers to regulate and supervise the market and its participants (issuers, CIS, SROs and exchanges, and securities intermediaries).
Each securities regulator has the authority to:
Make legally binding rules, and adopt policies and guidance. As indicated in
principle 2, in the four agencies, rulemaking is generally subject to ministerial approval (in the case of the BCSC, it requires approval of the Minister to initiate a rule-making process, as well as final approval of the rule and in Alberta, ministerial approval is only required for prescribed matters). They may also adopt policies of a non-binding nature. Similar to the process for rulemaking, the agencies, other than the ASC, are generally required to follow a public consultative process prior to adopting a policy.
Grant discretionary exemptions. The Securities Acts empower the agencies with
the authority to grant discretionary exemptions from securities laws. (The
Commodity Futures Acts and Derivative Acts have similar provisions). These
discretionary exemptions are issued as “orders”. Other than the OSC, the agencies have the ability to issue these discretionary exemptions on the basis of a “blanket order”, such that the order would apply to an entire class of market participant or transaction. The OSC may grant discretionary exemptions that apply to a class of market participant or transaction if it determines that the order sought does not constitute a prohibited blanket order.
Review prospectuses and issue prospectus receipts.
Grant registration/recognition/designation for securities intermediaries, exchanges and SROs and credit rating agencies, respectively. In all cases the agencies can
impose terms and conditions. They also can revoke the “authorizations” given, following a due process.
Monitor compliance. The agencies have the authority to review books and
records, conduct on-site inspections, and request information, on a periodic and on an ad-hoc basis.
Conduct investigations. Each securities regulator has the statutory authority to
conduct investigations into possible violations of provincial securities laws. To this effect they all can subpoena documents (including banking records,
telephone records, records from internet service providers) and require testimony. They also all have available emergency relief, including freeze of assets, cease trade orders and officer or director bans.
Impose enforcement actions: In all four cases the agencies have a wide set of
enforcement tools at their disposal, including administrative fines (that are generally up to $1 million) and disgorgement. In all cases, except the AMF, the Commissions are the adjudicative body, via hearing panels. In the case of the AMF the adjudicative function is conducted by a separate administrative
tribunal, the BDR. The BDR members are appointed by the government for fixed terms and can only be removed with due cause.
Quasi-criminal authority: Pursuant to their respective Securities Acts, the four
agencies have quasi-criminal authority to prosecute persons and companies for the commission of offences, which can be sanctioned with imprisonment of up to five years less a day and/or fines of up to $5 million. In one case, the agency itself can directly prosecute the cases in the courts (OSC), while in another dedicated prosecutors have been assigned to these cases (AMF).
Budget
As indicated in Principle 2, the four regulatory agencies are funded by fees levied on market participants.
Market conditions resulted in falling revenues (i.e. annual deficits) at some of the agencies in recent years (chart 1). However, the agencies retain reserves to maintain necessary capacity during periods of market turbulence.
Regulator Revenues and Expenses—Chart 1
Regulator Year Revenues Expenses
OSC
2012 $85,638,000 $90,025,000 2011 $72,955,000 $84,047,000 2010 $61,466,000 $79,450,000
2011 $84,849,000 $105,957,000 2010 $152,334,000 $84,953,000 ASC 2012 $31,344,000 $31,688,000 2011 $30,087,000 $32,413,000 2010 $32,733,000 $28,392,000 BCSC 2012 $36,872,000 $36,244,000 2011 $34,889,000 $31,216,000 2010 $31,409,000 $30,845,000 IIROC 2012 $84,999,000 $92,662,000 2011 $80,478,000 $77,402,000 2010 $76,517,000 $72,741,000 MFDA 2012 $30,700,000 $30,200,000 2011 $29,400,000 $28,900,000 2010 $25,200,000 $26,500,000
From 2003 to 2008, the OSC accumulated operating surpluses. A portion of these were returned to market participants through rebates, subsidized fee rates, or refunds. In addition, in light of the economic climate and in order to deplete the operating surplus, the OSC froze its rates of participation and activity fees in 2009 and limited its increases in 2010 to a rate that would see the OSC deplete its surplus over a three-year fee cycle. As a result, revenues were not sufficient to fully recover the OSC’s projected costs of regulating the market in each of the fiscal years of 2010 to 2012; and the OSC’s surpluses from
previous years were carried forward to cover the deficit. In April 2013, the OSC established a new fee rule that increased fees to levels designed to address the operating deficit and return the OSC to cost recovery and to build a small surplus by the end of the three-year fee cycle in 2016. The new fees will cover the costs to meet expanded regulatory responsibilities.
In fiscal 2011, AMF expenses included $20,600,000 payments to settle investor claims related to fraud, as the AMF has functions in connection with investor restitution.
In fiscal 2012, IIROC expenses increased to strengthen IT infrastructure and add staff to expand operating capabilities.
Human resources
The table below shows staff headcount by broad functional category for the period 2010 to 2012 for each regulator. In all cases, the number of staff has grown since 2010.
Functional Areas Year OSC AMF ASC BCSC
Category Total Corporate Finance/Investment Funds 2012 85 65 46 50 246 2011 88 64 45 47 244 2010 85 65 43 47 240 Registrants and Compliance 2012 70 18 17 31 136 2011 69 19 13 28 129 2010 64 20 12 28 124 Market Regulation and Derivatives 2012 27 15 7 6 55 2011 21 17 7 6 51 2010 18 15 6 5 44
Enforcement 2012 126 131 46 54 357 2011 118 112 46 50 326 2010 117 104 44 47 312 Advisory and Support Offices 2012 147 177 60 98 482 2011 128 166 65 84 443 2010 133 162 59 83 437 Permanent Employees—Total 2012 455 406 183 239 1,283 2011 424 378 183 215 1,200 2010 417 366 171 210 1,164 3-year growth average 5% 2% 4% 5%
In addition, the two national SROs—IIROC and the MFDA—act as front-line regulators in respect of dealers (including mutual fund dealers).
In 2012, IIROC had 422 employees, of which approximately 270 were engaged in enforcement, registration and compliance oversight activities. The MFDA had 171 employees, with approximately 130 engaged in enforcement, registration and
compliance oversight activities. Adding these staff figures to the staff at the OSC, AMF, ASC and the BCSC produces a total of 1,876 staff engaged in securities regulation in 2012.
Staff of the four agencies indicated that overall the agencies are able to pay competitive salaries. In the case of the OSC, ASC, and BCSC, surveys are conducted to have a
benchmark. In the case of the BCSC and the ASC, the salaries are aimed at the 50th
percentile of their comparative market. IIROC also conducts surveys, and its salaries are aimed at 75th percentile. Salaries at the AMF are established on the basis of the Québec
are ongoing.
The professional staff of the four agencies is comprised of lawyers and accountants, as well as staff with industry experience and expertise, including derivatives, trading, clearing and risk specialists and, in Alberta and BC, specialists in mining, oiling and/or gas. In recent years, the agencies have also hired several economists to enhance their risk and research units.
All four agencies have training programs for their staff. Annual Aggregate Training Budgets 2010 2011 2012 OSC $535,000 $576,000 $851,000 AMF $694,675 $1,180,025 $1,527,214 ASC $300,000 $300,000 $300,000 BCSC $290,000 $418,000 $478,000 Total $1,819,675 $2,474,025 $3,156,214
Turnover is low. ASC staff indicated that turnover is somewhat higher than the other regulators due to strong labor market competition from the Alberta oil and gas industry.
Average
Voluntary Turnover rate
OSC AMF ASC BCSC
2012 5.91% 5.8% 10% 3.3% 2011 4.34% 4.2% 13% 7.8% 2010 3.61% 3.5% 11% 7%
Technological resources
The agencies collectively spent more than $60,000,000 on information technology in fiscal 2012. In addition, there are several national electronic filings and systems for the official filing of documents by different market participants, including: (i)official filings by
advisers, (iii) filing and dissemination of insiders reports, (iv) a repository of cease trade orders, (v) a disciplined persons list, and (vi) the National Registration Search (NRS), which contains the names of all registrants (individuals and firms) in Canada, with the exception of those registered solely with the OSC.
The CSA plans to invest about $100,000,000 to replace the National Systems in phases over the next five years. CSA will integrate the standalone systems into a single, intuitive, secure filing system for regulators and market participants. As part of the renewal, CSA will implement technology advancements, such as XBRL, Web 2.0 and user interface improvements.
There are also important “provincial” initiatives including the development by the AMF of a market surveillance system that would allow for automated surveillance across the equity and derivatives markets.
Governance and priority setting
Provincial level
As indicated in Principle 2, the OSC, ASC and BCSC have adopted a Commission
structure for their organizations. Under this structure, Commission members, in addition to performing their regulatory responsibilities, also act as the board of directors. As board members, they are responsible for the overall stewardship of the agencies, including setting up their strategic priorities. The AMF has adopted a Superintendent structure for its organization. Under this model, the president is responsible for the overall functioning of the agency, including setting priorities.
All four agencies prepare strategic plans (usually with a three year horizon) that outline the priorities of the agencies. With varying degrees the development of such plans not only involves senior management but also staff and consultation with stakeholders. All four agencies have established mechanisms to ensure that day to day operations are in conformity with the strategic direction set up by the governing body.
In the case of the OSC, BCSC, and the ASC, they have all established Governance, Audit and Human Resource Committees.
In the case of the AMF, there is an advisory committee that supports the chairperson.
All four agencies have internal audits in charge of reviewing whether the agencies are properly discharging their functions. They all have established risk management
frameworks (the OSC is in the process of establishing it) to help the agencies to identify and manage material risks to the mandates of the institutions.
CSA level
The CSA has a Chair and Vice-Chair, each of whom is elected by members for a two-year term (one renewal is permitted).
The Chairs of each CSA member meet quarterly in person and bi-monthly by conference call. In addition, the CSA established the Policy Coordination Committee (PCC) in August 2003. Its members are the Chairs of the eight regulators (British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick and Nova Scotia). The PCC oversees the CSA’s policy development initiatives and facilitates decision-making. It acts as a forum for timely resolution of policy development issues, monitors ongoing issues and provides recommendations to the CSA Chairs for their resolution.
In addition, recently a committee of the Chairs of the four largest agencies was formed to serve as a body to solve differences among the provinces.
The CSA develops a Business Plan every three years, which identifies common priorities and proposed projects for all members of the CSA, including key deliverables. The CSA recently finalized a Business Plan for 2013-2016. The Business Plan will assist in
promoting continued coordination and harmonization in CSA policy initiatives and rules. The CSA established a permanent Secretariat in March 2004 in Montréal. The main function of the Secretariat is to help to keep policy initiatives on track by providing logistical support, including reports on progress, and manage the national databases. A project manager was recently added to the staff, to provide further support to the committees in ensuring that projects are delivered on schedule.
The Secretariat currently has 6 staff. The CSA is funded by its members on a per capita basis.
Investor Education
These issues have been discussed under Principle 4. Assessment Fully Implemented
Comments As many other securities regulators in industrialized countries, the four agencies face resource challenges arisen from the increased complexity of their securities markets. The agencies are aware of this challenge and in recent years have taken steps to add
professional staff with different profiles (such as staff with experience on ratings, trading, and more generally staff with market experience, as well as economists to complement the existing cadre of lawyers and accountants) to their respective organizations. This effort should continue so that the agencies are well equipped to understand and identify risks, both at the macro-level and micro-level. At the same time, it is critical that the
(compliance) and enforcement.
In terms of governance, the current structures at the provincial level appear robust. Of particular importance are the efforts of the agencies in the area of enterprise risk management and their connection with their internal audit units.
Principle 4. The regulator should adopt clear and consistent regulatory processes.