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Expert Panel - Consultation Questions - Meeting May 26th


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									                                     FEI Canada Capital Markets Committee
                                       Re: Expert Panel on Securities Regulation

                                         DRAFT MINUTES
                               Meeting #1: May 26, 2008 11:00AM EST
                                              By Teleconference

Chairs:          Bill Hewitt
                 Bill Ross
FEI Staff:       Michael Conway, Chief Executive & National President
                 Melissa Gibson, Communications Officer
Participants:    Mike Boychuk, Senior Vice-President & Corporate Treasurer, Bell Canada
                 James Cummings, Nexen Inc.
                 Stan Pasternak, Senior Vice President & Treasurer, Canadian Tire Corporation
                 Robert Gardner, Senior Vice President & Treasurer, TELUS
                 Michael Ioffredi, Vice President & Treasurer, SNC-Lavalin Group Inc.
                 Greg Blunden, Vice President, Finance & Treasurer, Nova Scotia Power Inc.
                 Costa Bucci, Assistant Controller, Financial Reporting, Canadian National Railway Company
                 Michael Lambert, Executive Vice President & Chief Financial Officer, Canadian Pacific Railway Limited

1) Introductions:       See Committee Membership
        The committee will collectively decide on the comments to submit to the Expert Panel on
        Securities Regulation, and all members will be sited in the final page of the submission in order
        to demonstrate FEI Canada’s broad representation from various integral industry groups
        across Canada. For an example of this, please see FEI Canada’s submission to the House of
        Commons Finance Committee on improvements to Canada’s tax system in English or en
        In framing its remarks, the point was made that FEI Canada primarily represents Canada’s
        reporting issuers and secondly its corporate users.

2) Timeline Objectives:
     Target date for FEI Canada response to Hockin Expert Panel:
             June 24th, 2008 (advanced from 30th due to long weekend)
     Supporting survey sent to members
          o Open to members:              June 2nd -12th
          o Analysis:                     June 13th-14th
          o Distribution to Committee:    June 16th

3) Discussion of Panel’s Terms of Reference & Public Consultation Items
                Consultation Item 1: Objectives, Outcomes, and Performance Measures
    o     Should Canada have a common set of objectives?
    o     What should be the objectives of securities regulation in Canada?
    o     Given the current context in global financial markets, should the reduction of systemic risk be
          an explicit objective of securities regulation?
    o     If so, how broadly should it be defined?
    o     Are there objectives for Canada that go beyond those defined by IOSCO?
    o     For example, should an objective be to enhance the competitiveness of Canada’s capital

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                                      FEI Canada Capital Markets Committee
                                       Re: Expert Panel on Securities Regulation

    o       What criteria should be used to evaluate securities regulation in Canada?

Item 1 Discussion points on May 26th meeting call:
     One concern expressed related to the extent of changes that could be triggered by the Expert
       Panel’s recommendations, and what transition period would be reasonable.
     Another major concern is that if the regulations change in Canada, this may disrupt things for
       companies listed in both Canada and the US. Some think there may be an end state of North
       American, or even global practice. A consensus decided that this must be considered before a
       comment is made.
     The reaction to having one regulator is that though it seems like a great thing, those who are
       already part of the market are fairly well versed in doing things the way they are now.
     There is concern for those outside of Toronto that they may not be represented properly by
       one single regulator. It would be preferable for there to be representation in each province.
     One idea is having a central regulator, with regional presence in particular industries, i.e.:
       Forestry in BC, Energy in Alberta.
     Pages 20-22 of the 2007 Budget describe a desire for a common securities regulator, not a
       federal regulator. A regulator that gives equal voice to all participating jurisdictions.

Item 1 Consensus: A common securities regulator is preferable, as long as all participating
jurisdictions are represented equally.

Item 1 Actions Arising (Responsible):
    o Michael Lambert is going to look into how the transition of securities regulation has gone in
        other parts of the world.

                        Consultation Item 2: Principles-Based Securities Regulation
        o     Could a more principles-based approach improve securities regulation in Canada?
        o     Are there areas of securities law or regulation that are overly prescriptive and could benefit
              from a more principles-based approach?
        o     What core regulatory principles should constitute the foundation of securities law?
        o     What are the risks and challenges of a more principles-based approach to regulation?

Item 2 Discussion points on May 26th meeting call:
     There is a cautious attitude toward adopting a principles based regulation, in fear that it may
       create either complexity or undue liability on the issuers.
     The Terms of Reference (page 7) contemplate that there could be a concern that more
       principles based securities regulation could expose businesses to greater enforcement risk.
       Alternatively, from a broader public assurance point of view, a principles base establishes high
       level, but it doesn’t mean the eliminate rules.
     From an investor perspective, it is similar to the “true and fair” view that the British favor.
     Principles can innovate in ways that rules cannot.
     Will a principle-based achieve simplicity? There will be a cost involved in the conversion, thus it
       would be helpful for the regulator to provide assistance in interpretation.
     Principles based can capture everything that is going on in the market from day to day.

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                                    FEI Canada Capital Markets Committee
                                      Re: Expert Panel on Securities Regulation

    As long as we can be satisfied that it will not create more risk, the principles based is
     preferable, with a national regulator rather than a federal one.
    Principles must be clearly defined and well articulated.

Actions arising (Responsible):
     Costa Bucci will find information on the draft Mutual Recognition Agreement between US and
        Australia and distribute it amongst the committee.

                         Consultation Item 3: Proportionate Securities Regulation
      o       To what extent is there need for proportionate regulation in Canada?
      o       What areas of securities regulation impose undue burden and could benefit from
              proportionate regulation?
      o       Should the economic characteristics of a company determine how it is regulated?
      o       If so, what should be the economic characteristics?
      o       What role could risk analysis play in the regulation of businesses?

Item 3 Discussion points on May 26th meeting call:
     Efficiency, effectiveness, uniform enforcement, and ability to access Capital Markets at will.
     There should be a consideration held that there are many SME to take into account. Canada
       had 3,800 publicly listed companies.
     A representative of a SME should be added to the committee.
     AIM London experience can possibly sited in reference to the need to remove impediments in
       generation of capital.
     There is a concern that one system might be too onerous on the smaller issuers.
     Should both large and small companies be answering to the same principles?
     If the cost could be taken out of the system for the smaller issuers it would encourage small
       companies to keep accessing the public market.
     Regulations should not be aimed at the lowest common denominator, but rather at the norm.

    Principles based should be applied no matter what the size.
    A proportionate system would increase complexity, rather than keep with simplicity and
    Single Securities act – one size fits all – Common system.
    The idea of regulating to “The Norm” rather than the lowest common denominator could be a
     practical solution.

Actions arising (Responsible):

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                                 FEI Canada Capital Markets Committee
                                  Re: Expert Panel on Securities Regulation

                                  Consultation Item 4: Enforcement

    a) Enforcement under a more principles-based approach
    o What would be the opportunities and risks to enforcement under a principles-based approach
       in Canada?
    o Should enforcement action be taken solely on the basis of a breach of principle?
    o Would the current system be sufficiently well positioned to enforce a more principles-based
    b) Independent adjudication
    o Should the adjudicative function be made independent of the securities regulatory agency?
    o Should a pan-Canadian adjudicative tribunal be established?
    o What governance model should be considered in the creation of this tribunal?
    o Would a separate adjudicative tribunal help with the enforcement of principles-based
    o In what ways could the enforcement of securities law and regulation be strengthened in

Item 4 Discussion points on May 26th meeting call:
     Has the problem been on enforcement? Has it been adjudication or resourcing? Both…and
       political as well, through non-action on actionable items.
     There is a need for more vigilance and toughness on the part of our regulation on enforcement.
     Independence will allow rules and a philosophy to develop, separate from the policymakers.
     There is a need with independence, to also have a clear link with the knowledge, and the
       background of what goes into the policymaking.
     Overall, the enforcement challenges have been resources, and a will to act.
     How would this independent body get resources? Tax payers? Though there is already cost
       built in for enforcement, so the additional cost would be minimal.

    Independence is agreeable, as long as it is coupled with proper/required resources and acted
     upon on a timely basis.
    The independent adjudication must also be fair and tough, and have the highest amount of
     knowledge in order to make proper judgments.

                        Consultation Item 5: Securities Regulatory Structure

    o    What are the strengths and weaknesses of the passport system as it is currently being
    o    Which structural model (passport or single securities regulator) would be best for Canada?
    o    Which model would best support the adoption of new regulatory approaches, including
         proportionate regulation and a more principles-based approach?
    o    Which would fulfill the need for the effective governance of Canada’s capital markets?
    o    What are the opportunities and risks of moving to a single securities regulator?
    o    How could a single securities regulator be implemented without being unduly disruptive to the

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                                     FEI Canada Capital Markets Committee
                                      Re: Expert Panel on Securities Regulation

    o       In particular, what can be done to effect a smooth transition?
    o       What is the best way forward for the federal and provincial governments?
    o       In the absence of an agreement, what do you suggest as an alternative model?

Item 5 Discussion points on May 26th meeting call:


Actions arising (Responsible):

                                             Concluding Remarks

    o       Overall, what should be the key elements of a model common securities act to improve
            securities regulation in Canada?
    o       How should the transition be managed and executed to minimize the disruption in Canada’s
            capital markets?

Concluding Remarks: Discussion points on May 26th meeting call:


Actions arising (Responsible):

             James Cummings will speak to Nexen’s UK faction, to see the timeframe of transition to
              principles based regulation. Also, the topic of independent adjudication should be touched on
              in this discussion if possible.

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