Oversight of Securities Market Intermediaries in Canada


Oversight of Securities Market Intermediaries
67. Oversight of market intermediaries is high-quality in line with the IOSCO Objectives
and Principles. Legal foundation underpinning securities regulation is generally strong. Ongoing
reforms in the areas of conduct of business of over-the-counter (OTC) derivatives and duties
towards clients should be completed. Under the auspice of the CSA, the regulatory frameworks are
mostly harmonized across provinces. However, removal of the “northwest exemption” for the
exempt market dealer category in Alberta, the inclusion of Ontario in the existing passporting
regime, and extension of statutory automatic reciprocal recognition of regulatory enforcement
orders to British Columbia and Ontario would further promoting efficiency. Stronger investor
protection can be achieved through giving the Ombudsman for Banking Services and Investments
binding jurisdiction on firms.

. Oversight of overall securities markets can benefit from more effective risk
identification and mitigation. For risk identification, a greater focus on systemic risk (in addition to
regulatory risk) and Canada-wide perspectives would be useful. These efforts should be supported
by a strategic plan to consolidate data collection and strengthen technical expertise. The ability to
undertake measures to mitigate identified risks in a timely manner is also critical in light of the
dispersed oversight structure. As market activities continue to evolve, a periodical review of the
regulatory perimeter should be conducted to ensure the effectiveness of the regulatory regimes.
69. A greater emphasis on high-impact firms, together with additional efforts to ensure
continued smooth market functioning and effective inter-agency collaboration for
enforcement, would be beneficial. Oversight of market intermediaries is structured and wellfocused on the riskiness of firms (i.e., the PD dimension), but expectations for high-impact firms
should be set to appropriately reflect their potential larger market impacts. Building on the recently
developed market disruption plan, the authorities should conduct market-wide crisis simulation
exercises and ensure adequate expertise in cyber resiliency.

 The authorities should also deploy a full
range of enforcement tools to constitute an effective deterrent and enhance collaboration with
other law enforcement bodies to ensure successful enforcement actions.
Oversight of FMIs
70. Oversight of FMIs is high-quality, but the roles and responsibilities of the BOC and the
three provincial securities regulators should be further clarified. FMIs are expected to meet riskmanagement standards consistent with the Principles for Financial Market Infrastructures (PFMI); the
CPMI-IOSCO monitoring showed complete and consistent implementation of the PFMI. Oversight of
FMIs is sufficiently resourced, and the BOC defines its policies through its guidelines and annual
oversight reports. Notwithstanding the existing MoU, a joint oversight framework (similar to the
joint OSFI-CDIC Guide to Intervention) should be developed to clearly outline the division of roles
and responsibilities. 

71. The current oversight approach can benefit from the use of assessment ratings,
backed by stronger enforcement powers available to the BOC. The use of ratings for designated
FMIs and their critical service providers will increase transparency, thus enhancing effectiveness of
moral suasion. In addition, the BOC should have stronger authority to use its directive powers to
ensure effective enforcement on necessary corrective actions.
72. Further enhancement in managing liquidity and operational risks will help ensure the
robust functioning of FMIs. FMIs have been operating normally. Improvements in cyber resiliency
should continue in line with international guidance, and compliance to endpoint security should be
tightened by self-attestations and audits of FMI participants. Liquidity risk management needs
further improvement, particularly regarding CDSX.12 With the move towards the RTGS environment,
an assessment should be performed on intraday liquidity risk of wholesale payment system
participants under market-wide stress.
12 CDSX is a central securities depository, securities settlement system and CCP.
Financial Integrity
73. The anti-money laundering and combating the financing of terrorism (AML/CFT)
framework is comprehensive but requires additional efforts to be fully effective. The 2016 IMF
assessment highlighted that Canada’s AML/CFT framework achieves satisfactory results in several
areas, such as supervision, but requires major improvements in others, notably with respect to the
real estate sector, casinos, the legal profession, and beneficial ownership transparency. Progress has
since been made, including by strengthening supervision of the real estate sector, bringing online
casinos into the AML/CFT framework, tightening requirements related to politically-exposed
persons, prohibiting bearer shares, and initiating an update of the money laundering and terrorist
financing risk assessment.
74. Ongoing efforts should continue, particularly with respect to beneficial ownership
transparency, the legal profession, virtual assets service providers (VASPs), and the real estate
sector. Information on the beneficial ownership of legal entities and arrangements should be made
readily accessible to the authorities. The legal profession and VASPs should be subject to AML/CFT
requirements and monitoring in line with the FATF standards. In addition, given the real estate
sector’s ongoing high-risk status, its supervision should be further strengthened

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