Recommendations include improvement of regulatory structure, SRO merger, and improved investor protections
Ontario’s Capital Markets Modernization Taskforce has released its final report, a sprawling document with recommendations to change seemingly all aspects of securities regulation in the province.
The exhaustive collection of proposals included a call to restructure the Ontario Securities Commission (OSC) to spin out its adjudicative structure, as well as give it a greater role in facilitating the province’s economic growth. Using the draft proposed Capital Markets Act as a foundation, it said the Ministry of Finance could collaborate with the OSC to implement an Ontario version of the CMA.
“The Taskforce is also recommending changing the name of the OSC to the Ontario Capital Markets Authority,” the report said, citing the need to reflect the expanded mandate sought for the provincial regulator.
Under the heading of improved regulatory structure, the taskforce called for a single self-regulatory organization (SRO) regime under which all advisory firms would be overseen. The SRO (or SROs, in case progress toward consolidation of IIROC and the MFDA is slow) would in turn be subject to increased oversight under the OSC.
To achieve back-office efficiencies and optimize regulation of similar products, the report suggested that the OSC explore opportunities to consolidate resources and harmonize with the Financial Services Regulatory Authority of Ontario (FSRA).
A number of recommendations also emphasized the need to support the growth independent dealers, including one notable suggestion to increase independent products’ access to bank-owned shelf distribution channels.
The report also suggested the introduction of a retail investment fund structure that pursues investment strategies in less liquid private markets, with a view to bridge a funding gap between small issuers that want to raise capital for their business and the many retail investors who want to invest in such products.
Touching on ESG, the taskforce called for mandated disclosure of material ESG information, specifically with respect to climate change in compliance with recommendations from the Taskforce on Climate-Related Financial Disclosure (TCFD). To support firms’ efforts to engage with activist shareholders, it also recommended that public companies and other reporting issuers be enabled to obtain data on their beneficial shareholders. Corporate diversity was also an area that requires enhancing, according to the report.
From an enforcement standpoint, the Ontario taskforce suggested that the OSC be conferred with greater powers to freeze, seize or otherwise preserve property to curb attempts by fraudsters to shield their assets by inappropriately transferring them to friends or family. It also suggested expanding Ontario’s enforcement toolkit by increasing maximums for administrative monetary penalties and fines for offences to $5 million and $10 million, respectively; empowering the provincial Court to issue capital markets production orders; and enabling the OSC to obtain orders to block or remove websites and social media sites, among others.
With respect to investor protection, the report proposed that the OSC be empowered to designate a dispute resolution service with the power to issue binding decisions; should binding-decision authority go to the Ombudsman for Banking Services and Investment (OBSI), it should comply with requirements for enhanced governance, public transparency, and professionalism.
In cases where evidence of direct financial loss to investors is sufficient, the report also said that the amounts collected by the OSC pursuant to disgorgement orders be distributed to harmed investors through a Court-supervised process.