(Business Law Currents) The Financial Industry Regulatory Authority (FINRA) and the Ontario Securities Commission (OSC) have entered into a memorandum of understanding (MOU) to facilitate the exchange of regulatory information and investigative assistance with respect to regulated entities that operate across the U.S.-Canadian border.

FINRA was formed in 2007 from the consolidation of the National Association of Securities Dealers (NASD) and member regulation, enforcement and arbitration operations of the New York Stock Exchange. It is the largest non-governmental regulatory organization for securities brokers and dealers doing business in the United States. The MOU joins others maintained by the OSC with regulators such as the SEC and the China Securities Regulatory Commission.

The deal is expected to enhance the ability of both regulators to oversee securities firms and markets. The arrangement will facilitate the exchange of information on firms and individuals under common supervision and support collaboration on investigations and enforcement matters.

For companies, such as asset manager Sprott Inc., this new level of cooperation between regulators is likely to be of interest. Sprott acquired the Global Companies, based in Carlsbad, California, early in the year. Global operates as a securities broker-dealer and is registered with FINRA. Sprott also has subsidiaries which are members of IIROC and OSC registrants.

Another company that has regulated operations on both side of the border is Toronto-Dominion Bank. As noted in a prospectus supplement issued by the bank in respect of a $600 million offering of medium term notes in November, the bank’s affiliate TD Securities (USA) LLC is a member of FINRA.

Issuers with regulated businesses in both Canada and the U.S. are already subject, in many cases, to regulatory capital requirements and certain trading and disclosure obligations. The MOU may serve as a signal that such entities should ensure that internal groups responsible for compliance in each jurisdiction communicate on a regular basis.

In addition to issuers directly regulated by the OSC and FINRA, companies that conduct cross-border offerings could be impacted by the increased level of cooperation between regulators. Cross-border deals are certainly a mainstay of the Canadian financial market. Retail mall operator Calloway REIT, for example, recently announced a bought deal offering of $100 million in trust units which has cross-border implications.

In Canada, the offering is being made by way of a prospectus supplement to Calloway's existing $2 billion base shelf short form prospectus. If sold in the U.S., the units will be offered pursuant to applicable exemptions from registration requirements. For that reason, the underwriting agreement includes a representation by the dealers, with respect to the private placement in the U.S., that their respective U.S. broker-dealer affiliates are duly registered brokers or dealers with the SEC and members in good standing with FINRA.

Another example of a cross-border deal in 2011 was the $360 million offering of Class A shares by Calgary-based Central Fund, a gold and silver bullion holding company. That deal was implemented by way of a prospectus supplement in Canada and a registration statement in the U.S. In the underwriting agreement concerning the offering, the deal was conditional upon FINRA confirming the fairness and reasonableness of the underwriting terms and arrangements, unless an exception was available.

Presumably the agreement between FINRA and the OSC will result in underwriter practices being subject to increased scrutiny, including compensation, conflict of interest issues and trading activities.

The MOU is subject to the approval of Ontario’s Minister of Finance. Subject to such approval, the arrangements will take effect in Ontario on January 18, 2012.