Ontario, the last holdout, said in July it would join the CSA's passport system.Tijana Martin/The Canadian Press
Ontario joining the Canadian Securities Administrators’ (CSA) passport system could make it easier for investment management firms to hire across jurisdictions and for independent shops to launch, with potential cost savings passed on to clients.
However, a lot of work remains before advisors and clients see results, industry groups say.
In the absence of a national regulator, the CSA created a passport system to allow securities registrants to work primarily with their provincial or territorial regulator under legislative provisions harmonized across Canada. The system was first proposed in 2004 and came into effect in 2008. Ontario, the last holdout, said in July it would join the passport system.
Although no timeline has been given, the move should streamline the registration of firms and individuals, applications for discretionary exemptions, and prospectus reviews and approvals for securities registrants outside Ontario who operate across Canada.
It may also speed up applications for firms and individuals in Ontario as the Ontario Securities Commission (OSC) won’t have to spend time reviewing applications submitted to principal regulators in other jurisdictions.
Katie Walmsley, president of the Portfolio Management Association of Canada, offers an example of what Ontario’s decision could mean.
Let’s assume a portfolio management firm in Vancouver has clients across the country and is registered in all provinces and territories. It needs to hire a new compliance officer.
Under the current system, the firm must submit applications to both the B.C. Securities Commission (BCSC) and the OSC, as BCSC approval extends to every province/territory except Ontario.
In practice, reviews may happen in sequence rather than in parallel, as other principal regulators often wait for the OSC to approve applications before moving ahead. The wait for two approvals may delay the hire and result in a backlog of compliance work that affects client service.
“Fast-forward to when all the terms and conditions and agreements are signed for Ontario to belong to the passport system,” Ms. Walmsley says. “The BCSC will now be able to make that decision and that decision will allow that chief compliance officer to do their role immediately upon approval, right across Canada.”
In general, she adds, when a firm hires a new client-facing advisor, it’s relatively quick to get approval through the passport system and from the OSC if that person was already registered in a similar role at their previous job.
However, a single approval through the passport system should speed up registration when a more detailed review is required, such as when a new hire is taking on a different area of focus or has non-standard qualifications.
With the industry looking to attract new advisors to replace a large number of advisors who will be retiring, Ontario’s decision should help accelerate approvals from the current three to six months. And when established advisors decide to launch startup firms, they should benefit from approvals faster than the current six to 12 months.
“We’re hopeful, more broadly, that it’s going to open the door to elimination of more interprovincial barriers,” Ms. Walmsley says. “It’s in keeping with both the current provincial government’s and the federal government’s priorities in terms of looking at ways to strengthen the Canadian economy and capital markets, in general, and attract international investment.”
More work needed
Yet, from Jonathan Preece’s perspective, Ontario joining the passport system “doesn’t answer some of the more fundamental or systemic issues that impact not only advisors and portfolio managers, but other market participants and, more generally, the health and competitiveness of Canada’s capital markets.”
Although Mr. Preece, senior policy counsel with the Canadian Forum for Financial Markets, says provincial/territorial securities laws are largely harmonized and the CSA harmonizes rulemaking through national and multilateral instruments, there are outstanding issues.
Recent examples include a CSA proposal to create a new self-certified investor exemption that resulted in several provinces sitting on the sidelines as well as provincial/territorial legislative obstacles standing in the way of efforts to resolve questions around advisor incorporation.
“The challenges [faced by] advisors, dealers, portfolio managers, other securities registrants as well as issuers, investors and everyone else involved in the markets … are more structural in nature than they are about pure harmonization,” Mr. Preece says.
That said, he appreciates the federal government has prioritized reducing interprovincial trade barriers. And with securities regulation making headlines, he sees an opportunity to raise awareness of obstacles to financial market competitiveness.
Michael Thom, managing director, CFA Societies Canada, sees Ontario joining the passport system as primarily affecting issuers and investment management firms currently navigating duplicative processes. That said, streamlining this work has the potential to benefit advisors’ clients by reducing costs passed on to them.
He hopes Ontario’s move is a catalyst for conversations about additional steps toward a robust, vital industry that’s competitive with international jurisdictions.
“We’ve been stuck, frankly, in a deadlock since the initial adoption of the passport system, with competing visions and agendas,” he says. “This is a step forward and it absolutely answers the call for what this industry, within the context of the Canadian economy, needs right now.”