BCN 2002/12 - New Concepts for Securities Regulation [BCN - Rescinded]

Publication for comment

The British Columbia Securities Commission is publishing for comment its concept paper New Concepts for Securities Regulation.  The paper accompanies this Notice.

We developed these concepts by asking ourselves how effectively our current system of regulation deals with today’s threats to investor protection and market integrity.  The concept paper identifies existing rules that impose major regulatory burdens on industry but that may not protect investors and markets as effectively as in the past.  The paper also identifies areas where new rules may make sense.

At this stage, the concepts are ideas for discussion, not proposals.  Through this comment process and the accompanying consultation program described below, we will hear the views of industry, investors and our fellow regulators on the concepts.  We will be guided by the comments we receive in designing any proposals we ultimately recommend.

In addition to considering comments received in response to this Notice, we will conduct consultation sessions and focus groups with market participants across the country.  These events will take place in March and April in various cities including Vancouver, Calgary, Toronto and Montreal.  If you are interested in participating in one of these sessions, please contact us.

We are working actively with our CSA colleagues in the Uniform Securities Law (USL) Project to achieve the important goal of making Canada’s securities laws uniform.

However, we do not think that achieving uniformity alone will meaningfully reduce the regulatory burden on industry.  Lack of uniformity is part of the problem with our system of regulation, but the bigger burden faced by industry is too many rules that are too complex, are too rigid and change too often.

We therefore think it is important to use the opportunity provided by the USL Project to do two things that would substantially improve the efficiency and competitiveness of Canada’s securities markets.  We can both eliminate the vexing differences among securities legislation in different provinces, and simplify and update a system of regulation that has grown too complex and has failed to keep pace with a rapidly changing market.

The Concepts

There are six main concepts in the paper; the following is a summary.

Concept 1 - Continuous Market Access System

This concept would replace the prospectus-based system for distributing securities with one that would allow issuers to go to market at any time based on their continuous disclosure record.  There would be no mandated offering document, except for an issuer’s IPO.  For issuers in the system, the prospectus exemptions regime, hold periods and resale restrictions would all disappear along with the prospectus requirement.  An enhanced continuous disclosure regime would be introduced that would require issuers to maintain “evergreen” disclosure of all material facts.

Concept 2 - A Simpler Registration System

This concept would replace many detailed and prescriptive registration rules with a code of conduct.  The code would state general principles about registrant qualification, proficiency, character, and behaviour.  It would be accompanied by a policy or similar interpretive document to provide guidance to industry on the application of the code.  Registrants would be liable to investors if the code was not followed.

The concept would allow anyone registered in one Canadian jurisdiction to do business across Canada.

The concept questions whether individual registration is still necessary, and considers whether foreign registrants who do not solicit business in Canada should be allowed to advise or open accounts for Canadians without having to register here.

Concept 3 - A Better Mutual Funds Regime

This concept would adopt a code of conduct approach for the mutual fund industry similar to that described in Concept 2.  It would replace many of the current prescriptive requirements for conflicts of interest and sales practices.

We say in the paper that we wonder whether mutual fund prospectuses are still necessary.  Through past surveys, we learned that investors did not read mutual fund prospectuses; if this has not changed, we would consider eliminating the prospectus requirement.  Instead, a mutual fund would maintain an evergreen comprehensive disclosure record on the internet.

The concept would also enhance current continuous disclosure requirements for mutual funds.

Concept 4 - Trade Disclosure

We currently require some investors to disclose when they buy or sell securities.  The disclosure obligations differ depending on the investor category.  The concept would change the existing regimes so that the requirements match the market’s need for information.

Insiders would be defined in terms of their access to material non-public information, rather than title or salary.

The concept would replace the existing early warning reporting system with a “significant shareholder” reporting regime.  Control persons and shareholders with 10% or more of an issuer’s outstanding shares would have to report significant changes in their holdings by press release.  The current reporting system for eligible institutional investors would be maintained. 

The concept questions whether the current requirement for control persons to give advance notice of an intention to sell gives the market meaningful information.  If it does not, this requirement could be eliminated. If retained, it could be improved.

The concept would also require issuers and registrants to follow procedures designed to mitigate the risks of illegal insider trading and to improve detection of the wrongdoers when it occurs.

Concept 5 - New Enforcement and Public Interest Powers

The concept considers giving Commissions the power to order that persons who breach securities law must disgorge their profits, or make restitution to those they have harmed.  It also considers giving Commissions the power to order that a professional could not appear before them or prepare documents filed with them on the basis of gross incompetence or egregious conduct.

The concept would allow anyone to apply to the Commission for a compliance or restraining order if they could show a breach of securities law was imminent or in progress. 

The concept would prohibit market participants from engaging in unfair practices, such as high-pressure sales tactics.

Concept 6 - New Civil Remedies

This concept would significantly expand investors’ ability to sue market participants who break the rules.

Investors could sue:

• issuers who do not keep their continuous disclosure record up to date and accurate,
• registrants and others who do not comply with the applicable code of conduct,
• people who trade illegally on insider information, and
• anyone who commits fraud or market manipulation or uses unfair practices.

A class action regime for these actions would be included in the legislation.

Defendants would have due diligence and other defences and appropriate procedural protections.

Comments

We invite you to write us about the concept paper.  We will consider everything received by April 22, 2002.

Please send your comments to:

British Columbia Securities Commission
c/o Brenda Benham
Head, Deregulation Project
PO Box 10142, Pacific Centre
701 West Georgia Street
Vancouver, British Columbia
V7Y 1L2
Fax: (604) 899-6506
e-mail: deregulation@bcsc.bc.ca

If you are not sending your comments by e-mail, please include a disk containing the submissions (in DOS or Windows format, preferably MS Word). 

Please note that your comments will not be confidential.

If you have questions or wish to participate in our consultation process, please contact any of these people:

Brent Aitken
Chair, Deregulation Project
(604) 899-6749
baitken@bcsc.bc.ca

Brenda Benham
Head, Deregulation Project
(604) 899-6635
bbenham@bcsc.bc.ca

Adrianne Marskell
Lead Counsel, Deregulation Project
(604) 899-6645
amarskell@bcsc.bc.ca

Sandy Jakab-Hancock
Senior Legal Counsel, Deregulation Project
(604) 899-6869
shancock@bcsc.bc.ca

Simon Kent
Legal Counsel, Deregulation Project
(604) 899-6870
skent@bcsc.bc.ca

Leigh Anne Mercier
Senior Legal Counsel, Deregulation Project
(604) 899-6643
lmercier@bcsc.bc.ca

Wendy Woloshyn
Legal Counsel, Deregulation Project
(604) 899-6642
wwoloshyn@bcsc.bc.ca

February 15, 2002

Brent W. Aitken, Commissioner
Chair, Deregulation Project

This Notice may refer to other documents. These documents can be found at the B.C. Securities Commission public website at www.bcsc.bc.ca in the Commission Documents database or the Historical Documents database.