November 2013

Regulators to join forces

Collaborative Canadian securities regulator could help companies put more money into projects

By Anna Reitman

Mining and investment groups are optimistic that Canada’s recently announced cooperative regulatory regime will make accessing capital markets more efficient for companies.

The framework agreement between British Columbia, Ontario, and the Government of Canada envisions “a common regulator administering a single set of regulations designed to protect investors, support efficient capital markets and manage systemic risk,” according to Canada’s Finance Department.

Currently, an inter-jurisdictional passport system allows listed companies automatic access to capital markets in every other province and territory, except Ontario, which accounts for about half of all Canadian securities’ market value and 80 per cent of market activity. Access to Ontario markets for non-Ontarian-listed companies must instead be approved by the Ontario Securities Commission (OSC). In general, miners wanting to raise money from Ontario have to become reporting issuers locally and in Ontario, which is the priciest jurisdiction in Canada. Moreover, prospectuses are examined by two regulators for approvals.

Gordon Keep, CEO at Fiore Management and Advisory Corp. and member of the working group that advised the B.C. finance minister during negotiations, said the existing passport system is efficient but Ontario’s refusal to join is a problem. Junior miners “have been hamstrung because most of the big funds are out of Ontario. The beauty of this system, if it is adhered to as per the framework agreement, is that Ontario no longer stands by itself,” he said.

The regulator will be headquartered in Toronto and led by an expert board of independent directors with oversight from a council of ministers from all participating jurisdictions. It will be self-funded by a single set of fees and will have an office in each participating province.

PDAC is encouraged by the move and will look to contribute to the design and implementation of any future system as it takes shape. Nadim Kara, senior program director at PDAC, said there is a major opportunity for the new regulator to select the best of what is currently working across Canada. Based on discussions with PDAC members, he said there is widespread support for how British Columbia deals with prospectus exemptions, for example.

“The B.C. model has some important features that help facilitate capital raising,” Kara said. “Will the new regime incorporate these or adopt the more conservative OSC model? That is what we would like to see more clarity on.”

Regulatory changes to Canada’s capital markets cannot come soon enough, he added. PDAC research shows that fundraising for many junior companies is dire. With more than 75 per cent of TSXV-listed companies trading at or below 10 cents a share, some are engaged in desperation financing, sometimes for as little as $50,000. “Companies are financing just to pay the auditors,” Kara said. “There has got to be a creative way to help companies put more money into the ground instead of into regulatory compliance.”

Ian Russell, president and CEO of the Investment Industry Association of Canada (IIAC), believes that the cooperative deal is attractive on several fronts, including that it respects pro­vincial jurisdictions and strengthens enforcement of white-collar crime.

Specific to the mining industry, one set of rules in the form of a uniform securities act is increasingly important in an environment of private placement financings, and where shareholders are solicited from across the country.

“Transactions, be they financing transactions or restructurings, will move more smoothly and cost-­effectively from a regulatory standpoint,” said Russell, though he is not optimistic about any cost alleviations associated with regulatory fees, at least in the short term.

He acknowledged concerns from within the mining industry that Toronto will inevitably draw in the expertise and employment from other provinces, but pointed out that Vancouver has remained a junior mining hot spot despite the venture stock exchange being headquartered in Toronto.

B.C. Finance Minister Michael de Jong explained that, as designed, the framework will have a permanent deputy chief regulator in Vancouver, who will, along with the rest of the national management team, have a strong, leading role in the development of national policies.

“Day-to-day decisions affecting B.C. market participants will continue to be made in British Columbia,” he said. “This cooperative approach will not only benefit the B.C. securities industry, but it will also benefit Canada’s securities industry by bringing our expertise and regional perspective to the rest of the country through the nationally integrated executive management team.”

The move towards a national regulator in Canada has a history punctuated by legal disputes, fought particularly hard by Alberta, Quebec, and British Columbia, in the past. Among other objections to the proposed regulator, Quebec Finance Minister Nicolas Marceau pointed out the potential disruption to the existing passport system, and Alberta Finance Minister Doug Horner has expressed concerns about how the national regulator might affect the future of the province’s regional oil and gas market. The fact that British Columbia, which represents between 15 and 20 per cent of Canadian securities’ market value, is on board now may prove significant for the agreement’s success.

Federal Finance Minister Jim Flaherty has extended an invitation to all provinces and territories, and if other jurisdictions do join, Keep said Ontario has to prove it is not demanding a Toronto-controlled solution. “If we can get OSC to start acting as if it is part of the passport system, that gives other provinces comfort that it is willing to have it be a truly national dialogue,” he said.

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