Expert Panel on Securities Regulation

Creating an Advantage in Global Capital Markets


Table of Contents

Timely, consistent, and visible enforcement of securities laws and rules is critical for deterring wrongdoing, protecting investors, fostering investor confidence, and encouraging participation in capital markets.

We are troubled by the concerns expressed during our consultations regarding securities enforcement in Canada. Stakeholders suggested that the scope of enforcement activities is not sufficiently broad or sophisticated to credibly deter wrongdoing. When action is taken, they noted, it is often ineffective at prosecuting those who have imposed significant losses on Canadians. To illustrate this point, stakeholders indicated that law enforcement bodies in the United States appear to have greater success in prosecuting Canadians that commit capital markets crime than Canadian authorities. One manager of a large Canadian pension fund stated that the fund has a policy of purchasing Canadian stock on U.S. stock exchanges in order to have the benefit of U.S. enforcement and redress.

We are also concerned that the lack of strong enforcement might be imposing undue reputational and economic costs on Canada. A number of recent economic studies have shown empirically that the cost of equity is higher in countries where investors are afforded less protection against the risk of losses due to wrongdoing.35 It follows that investors want to be compensated for the additional risk and generally weaker enforcement regimes.

We do not have a mandate to broadly review the system of enforcement in Canada. Many expert groups and commentators have opined on enforcement issues in recent years.36 However, in light of the concerns expressed by stakeholders, and the importance to the economy in getting it right, we felt compelled to provide some direction.

“…a continuation of this fragmented approach to enforcement will continue to erode investor confidence and discourage investment by Canadian and international investors.”


We believe that the establishment of the Canadian Securities Commission, accountable to the federal Parliament, would be a significant step forward in supporting improvements to administrative enforcement. As previously discussed, the consolidation of administrative enforcement activities from 13 commissions into one would concentrate resources, eliminate unnecessary duplication and overlap, and support greater consistency in investor protection across Canada. We also note that the Commission, conducting administrative enforcement, might better align, and lead to improved cooperation, with federal and international criminal enforcement authorities. The latter is particularly at issue since most countries, including Canada, reserve treaty-making authority for federal governments.

We recognize that there are currently important efforts underway to improve criminal enforcement. For example, the RCMP-led Integrated Market Enforcement Team (IMET) program, which investigates the majority of capital markets criminal infractions in Canada, is in the process of implementing the recommendations identified in the Le Pan report.37 We are encouraged by the recent criminal charges laid in a number of high-profile cases.38 Sufficient time must be provided to allow reforms to take their course. That said, we do note that criminal enforcement appears to be hampered by the same fragmented structure that is undermining securities regulation. Each province has varying degrees of investigative, prosecutorial, and adjudicative expertise and resources to handle criminal matters, which appears to impede Canada’s ability to have a strong national system of criminal enforcement.

In addition to the establishment of the Canadian Securities Commission, we recommend there be an examination of larger structural reforms to strengthen enforcement in Canada. We believe that the structural reform proposal submitted by the Canadian Coalition for Good Governance during our consultation process should warrant particular attention.39 The proposal would establish a National Enforcement Branch under the auspices of a single securities commission (see Figure 1). The Branch would have two distinct and independent Divisions; one Division would investigate and prosecute matters regarding administrative enforcement, while the other Division would conduct corresponding activities for criminal enforcement. Administrative matters would continue to be adjudicated by the independent adjudicative tribunal. Criminal matters would be brought before criminal courts presided over by judges that have the necessary expertise to properly adjudicate capital markets criminal cases.



In addition to the establishment of the Canadian Securities Commission, we recommend there be a full examination of larger structural reforms to strengthen enforcement in Canada, including a complete assessment of the merits of a National Enforcement Branch that consolidates administrative and criminal enforcement functions.

As our research study on an equivalent structural proposal indicates, the consolidation of administrative and criminal enforcement functions may help to strengthen enforcement in Canada.40 First, expertise in administrative and criminal enforcement (i.e., investigative and prosecutorial) is currently diffused across Canada. The Branch would concentrate this expertise, which might lead to improved enforcement outcomes. Second, the interaction between administrative and criminal enforcement authorities is often slow and uncoordinated. The Branch would allow for a quicker and clearer choice between pursuing investigations and prosecutions that are administrative or criminal. Finally, the coordination of cross-border investigations and enforcement actions is sometimes difficult given the fragmented structure of enforcement. The Branch would provide a single point of contact for all enforcement matters and, therefore, facilitate improved coordination with foreign regulatory and criminal authorities.

Some have argued that this structural reform should be pursued in the absence of a single securities commission. Our view is that the significant structural benefits would be diluted in a multi-jurisdictional framework. We also note that, even with a single securities commission, such a structural reform, although appealing in many ways and conceptually simple, would be a significant undertaking and could likely not be implemented quickly. The reform would require the support and cooperation of multiple jurisdictions and organizations in Canada.


35 See, for example, Witmer, Jonathan. “The Cost of Equity in Canada: An International Comparison.” Bank of Canada Working Paper (21-2008); or Hail, Luzi and Christian Leuz, “International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?” (2006) Journal of Accounting Research, 44:3 485.

36 See, for example, Cory, Peter and Marilyn Pilkington. “Critical Issues in Enforcement.” The Task Force to Modernize Securities Legislation in Canada (2006).

37 Le Pan, Nick (Special Advisor to the Commissioner of the RCMP). “Enhancing Integrated Market Enforcement Teams: Achieving Results in Fighting Capital Markets Crime” (October 2007).

38 For example, in June 2008, IMET charged six individuals with defrauding Royal Group Technologies Limited. It also arrested six former employees of Norbourg Financial Group, laying 922 criminal charges.

39 The submission by the Canadian Coalition for Good Governance to the Expert Panel on Securities Regulation is accessible at

40 Puri, Poonam. “A Model for Common Enforcement in Canada: The Canadian Capital Markets Enforcement Agency and the Canadian Securities Hearing Tribunal.” Expert Panel on Securities Regulation (2009).