Oversight of Securities Market Intermediaries 67. Oversight of market intermediaries is high-quality in line with the IOSCO Objectives and...
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. 68
. 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 CANADA INTERNATIONAL MONETARY FUND 31 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. CANADA 32 INTERNATIONAL MONETARY FUND 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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