A lot has happened since 2001, the last time Ontario instigated a review of its Securities Act. Back then, Internet Explorer was the browser of choice. People still went into bank branches to do most of their banking. The calamitous 2008 recession was years away. Robo-investing algorithms were largely science fiction.
Even then, the 2001 review — released two years later — remains prescient today.
Technically, the Securities Act requires a mandatory five-year statutory review. Two successive Liberal governments have ignored that requirement since the last report came out in 2003. This past fall, however, the Progressive Conservative government announced their intentions to bring the legislation properly into the 21st century.
The Act “is outdated, and should support modern capital markets,” reads the government’s fall economic statement. “Ontario will undertake measures to create a modernized securities regulatory framework that is responsive to innovation and changes in a rapidly evolving marketplace.”
There’s little doubt an update is needed. Exactly what the government has in mind, though, is an open question.
Red tape reduction, one province at a time
In 2019, the Ontario Securities Commission released a report promising to slash red tape and regulatory burden in Ontario’s capital markets.
Shara Roy, a partner at Lenczner Slaght, says the responses to the commission’s consultations around that paper made a few things clear. Those in the market want “more tailored and flexible regulation, fewer hoops to jump through and harmonization across jurisdictions,” she wrote to CBA National — with some input from her colleagues Madison Robins and Sarah Bittman, also lawyers at the firm.
The final report from the commission recommended a suite of areas where rules can be simplified or streamlined, or where digitization can save investors and companies time and money.
The OSC, for example, recommended an amendment to the Act to allow for industry-wide blanket orders, especially for exemptive relief applications, instead of issuing orders purely on a case-by-case basis. That will remove the need for each company to file for relief, one-by-one. It also indicated plans, going forward, to tailor regulations for financial technology firms — the existing regulations are “cumbersome,” Roy says. All told, there were dozens of recommendations on how to cut red tape and simplify capital markets, especially for small and medium-sized firms.
Much of the feedback turned on the fact that Canada’s securities regulations are still a thicket of different rules.
“In the absence of a national regulator,” Roy says. “The cost and burden of complying with similar (but not necessarily identical) requirements across provinces is expensive and time-consuming.”
For years, there have been plans afoot to try and regulate securities at a national level. A 2011 reference to the Supreme Court shot down the idea of a mandatory national body. A 2018 decision opened the door for an opt-in model, built around Ottawa’s planned Cooperative Caital Markets Regulatory System.
The cooperative system is not yet online, nor does it have total buy-in. So far, British Columbia, New Brunswick, Ontario, Saskatchewan, Prince Edward Island, the Yukon, and Nova Scotia are opting in to the system. Notably (and perhaps fatally) missing are Alberta and Quebec.
But the OSC review shows the extent to which variable rules can still cause headaches.
“The OSC received feedback that crowd-sourcing was not an attractive capital-raising tool, due to disharmonized rules across Canada,” Roy says. That crowdfunding model promised to be a real market disruptor. “But in moving quickly to adapt to the market development, individual provincial regulators adopted different rules and requirements. Given the nature of crowd-sourcing, companies were generally required to meet those requirements Canada-wide. As a result, the cost of complying with what was meant to be innovative investment regulation instead led to reduced use of the market tool.”
More onerous regulations in other provinces can limit the effectiveness of even the most sensible policies out of Ontario. As three Torys lawyers — Rima Ramchandani, David A. Seville, and Robbie Leibel — noted when the report came out, any “lack of national harmonization will undermine any progress in Ontario.” At the same time, the three noted: “The report was silent as to how the burden reduction reforms might interact with the planned Cooperative Capital Markets Regulatory System.”
Roy and her colleagues write that the 2018 Supreme Court reference “may have paved the way forward for harmonized national securities regulation, but implementing such nation-wide regulation will take time. Not all provinces have signed on.” To that end, waiting around for the other provinces to get on board, before embarking on a full-scale fix-up of Ontario’s regulatory regime, may be untenable. “The review of Ontario’s Securities Act is long overdue.”
One good report deserves another
Even though plans by the OSC to cut red tape seem to line up closely with the Ford government’s stated goals, there has been some friction between the two.
According to a January report from the Globe & Mail, Maureen Jensen, chair and CEO of the OSC was pushing for some initiatives that, while popular with other provincial regulators, didn’t win her fans in the premier’s office.
While there are plenty of areas where the provincial regulators are not on the same page, the issue arose from a file where they were all in agreement.
Jansen had pushed the other regulators in the country to get on board with a plan to ban deferred sales charges — fees accrued when investors cash in their mutual funds earlier than a predetermined date. Every securities regulator in the country committed to banning the fees. When it was announced, however, the Ford government came out against the plan. Ontario will now be the only jurisdiction in Canada where those fees are allowed.
Other securities regulators, in Canada and abroad, have forged ahead on improved reporting for publicly-traded entities. For years, the Canadian Securities Administrators — a body made up of securities regulators from all provinces, but which primarily serves in an advisory role — drew up guidelines on disclosing climate change risk management and gender diversity on corporate boards.
But, for the Ford government, neither of those commitments seemed important.
This January, Jensen abruptly announced her resignation, a full year before her term was set to expire. She’ll leave the job in April.
Weeks later, Finance Minister Rod Phillips announced the Capital Markets Modernization Taskforce, appointed to help discern where the Act needs updating. Chairing the task force is Walied Soliman, the Canadian Chair at Norton Rose Fulbright and a longtime PC donor and organizer.
“It remains to be seen how the CSA’s guidance [on climate change and gender diversity] may be affected by the task force’s mandate,” Roy says. “Will the ‘burden’ of equitable and environmental disclosure be viewed as too ‘costly’ to meet the Ontario government’s stated objective of eliminating red tape?”
While that answer won’t come until the task force delivers its report, it is clear that Ford wants to put his own stamp on the modernized Act.
Roy and her colleagues describe somewhat of a culture shift coming to the OSC. At present, the Act is geared towards protecting investors and ensuring that costs and regulations saddled onto businesses are commensurate with the aims of the regulations themselves. “The Ford Government has asked the OSC to weigh the economic costs of any new regulation against benefits to stakeholders – essentially a cost-benefit analysis,” she writes.
“We can therefore expect to see changes to the Securities Act that enshrine the cost-benefit principle more directly,” she adds. In other words: Expect to see the “open for business” mentality come to the securities regime. “There is little discussion of bolstering investor protection, but balancing those interests will be a key objective for the task force.”
Even if a longtime political operative chairs the task force, Roy points out that there is a depth of talent on the bench, including the former deputy commissioner of the Financial Consumer Agency of Canada. Balancing investor protection with that business-friendly approach will be the crux of the taskforce’s work.
A significant development since the last time the Act was reviewed has been enforcement. Roy points out that, in recent years, the OSC has started the Joint Serious Offences Team — a partnership with the Ontario Provincial Police and the RCMP to investigate offences under the Securities Act.
Updating the Act is sure to be a tricky prospect. But the trend, for years, has been to bring the various regulators closer into lock-step. Ford's government, it seems, is looking to break that trend.