In July 2019, the Alberta Securities Commission (ASC) joined other signatories, including the Ontario Securities Commission and the United States Securities and Exchange Commission (SEC), by signing the International Organization of Securities Commissions’ (IOSCO) Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (EMMoU).
This step by the ASC reflects an ongoing increase in cooperation among Canadian and foreign securities regulators in the context of increasingly globalized capital markets.
IOSCO
IOSCO was established in 1983 when 11 securities regulators from North and South America agreed to build their inter-American association into an international body. It was incorporated as a not-for-profit entity in Quebec in 1987, and moved to Spain in 1999.
According to IOSCO, it is “the international body that brings together the world’s securities regulators and is recognized as the global standard setter for the securities sector. IOSCO develops, implements and promotes adherence to internationally recognized standards for securities regulation. It works intensively with the G20 and the Financial Stability Board (FSB) on the global regulatory reform agenda.”
In 1998, IOSCO adopted the Objectives and Principles of Securities Regulation which it says are “now recognized as the international regulatory benchmarks for all securities markets”.
In 2002, IOSCO adopted a Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (2002 MMoU) which was aimed at facilitating cross-border enforcement and the exchange of information among international securities regulators.
Subsequently, it was concluded that increases in globalisation and the interconnectedness of financial markets, as well as advancements in technology “changed the way that the securities and derivatives industry operates and how violations of securities and derivatives laws occur. The lessons of the global financial crisis, and the experience gained by the signatories to the 2002 MMoU have made clear that it is critical to enhance information sharing and cooperation between IOSCO members: to keep pace with technological, societal and market developments; to bolster deterrence; and to ensure that IOSCO continues to meet its objectives.” Accordingly, in 2016, IOSCO adopted the EMMoU, which is aimed at enhancing cooperation in this new environment.
EMMoU
The EMMoU focuses on mutual assistance and the exchange of information for the purpose of enforcing and securing compliance with local securities laws. It is not intended to create legally binding obligations or to supersede those laws.
The EMMoU provides a procedure for requests for assistance and responses to such requests. Article 6 of the EMMoU limits the use by which the “Requesting Authority” may make of non-public information provided in response to requests for assistance. Article 7 provides for confidentiality.
According to the ASC, the “EMMoU is focused on safeguarding market integrity and stability, protecting investors and deterring misconduct and fraud in the capital markets. It fosters greater enforcement cooperation and assistance among securities regulators and provides the fullest assistance permissible in order to increase the effectiveness of investigations.”
Validity of EMMoU under Canadian law
We are not aware of any reported Canadian decisions which specifically consider the EMMoU. Existing jurisprudence suggests that Canadian courts would support its validity.
Global Securities
In 2000, the Supreme Court of Canada in Global Securities v. B.C. (Sec. Comm.)[1] considered a memorandum of understanding entered between the British Columbia Securities Commission (BCSC) and the SEC pursuant to which the parties agreed to provide the “fullest mutual assistance”, including the sharing of documents and the taking of evidence when requested by another signatory. During the same year of the memorandum of understanding, British Columbia had amended its Securities Act to authorize the Executive Director to order a registrant to produce records “to assist in the administration of the securities laws of another jurisdiction”. In the case at hand, the BCSC had made a disclosure order against the respondent pursuant to a request from the SEC in furtherance of an SEC investigation. The respondent provided only some of the requested documents, and the BCSC issued a notice of hearing to determine whether it was in the public interest to order the respondent to produce the balance. The respondent then filed a petition seeking a declaration that the new provision of the Act was ultra vires the province. The petition was dismissed at first instance, but granted on appeal.
The Supreme Court of Canada allowed the appeal of the BCSC, holding that the provision was intra vires. The Court found that the dominant purpose of the provision was the enforcement of British Columbia’s securities laws. The provision furthered that goal in two ways. First, it regulated the intraprovincial securities market, which often required access to records outside the province. If the BCSC was to expect cooperation from other regulators, it must reciprocate. Second, it would likely help uncover misconduct abroad by domestic registrants.
Beaudette
In 2015, the Court of Appeal of Alberta in Beaudette v. Alberta (Securities Commission)[2] considered s. 46 of the Alberta Securities Act which allows the Executive Director of the ASC to share information with “law enforcement agencies and other governmental or regulatory authorities in Canada and elsewhere” if the Executive Director considers that “it would not be prejudicial to the public interest to do so.” The appellant challenged the constitutionality of s. 46 when considered with s. 41 of the Act which gives the ASC authority to compel evidence as part of an investigation, arguing that the possibility of the ASC sharing compelled evidence with other regulators such as the SEC infringed his right to liberty and his protection from unreasonable search and seizure under the Charter.
The Court was quick to reject the search and seizure argument, finding that the appellant had a low expectation of privacy regarding knowledge or records relating to his public trading in the capital markets.
The Court also rejected the argument regarding the right to liberty, finding, among other things, that the appellant’s assertion that compelled evidence would somehow be unlawfully shared with the SEC was not evidence that this was likely to happen. The Court found that the liberty interest is engaged “where state compulsions or prohibitions affect important and fundamental life choices”, but that “[s]uch choices do not include the election to participate in a highly regulated industry, with its necessarily attendant regulatory rules and consequences thereof.” Further, the Securities Act authorizes investigation into possible fraud in the capital markets, but it is not “in service of the criminal law”.
Conclusion
The ASC’s signature of the EMMoU reflects a clear intention to foster greater enforcement cooperation and assistance with other securities regulators with a view to increasing the effectiveness of investigations in the context of a global capital market.
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[1] [2000] 1 S.C.R.
[2] 2016 ABCA 9. Leave to appeal refused: [2016] S.C.C.A. No. 97.