Comments from more than 110 stakeholders on the Ontario Capital Markets Modernization Taskforce’s proposals have now been submitted to await the task force’s final report at yearend.
At this point, it would be interesting to speculate on the impact of the task force’s proposals, but it is difficult to do so because the recommendations are intertwined with other regulatory reform initiatives. The task force must recognize this when it is finalizing its proposals to ensure the intended policy objectives of fostering fair and efficient markets, protecting investors and reducing systemic risk.
A major focus of the task force recommendations is to strengthen the effectiveness and competitiveness of Ontario capital markets to assist businesses — small and large — in raising capital and incubating innovation, thereby reinvigorating a post-Covid-19 economic recovery.
The task force has put forward an alternative prospectus offering model for reporting issuers, in addition to proposals to improve the flexibility and depth of exempt market (non-prospectus) financings, streamline the timing of financial reporting obligations and move to electronic delivery of information in the capital markets.
The task force supports the timely execution of the CSA’s proposals to relieve the regulatory burden on corporate issuers and the OSC’s recommendations to reduce the regulatory burden and save time and costs for businesses. Presumably, the task force proposals for electronic dissemination will build on the existing CSA model and planned implementation. Further, recommendations by the Alberta Securities Commission to kickstart the province’s venture markets (see the June 2019 consultation paper) could benefit Ontario markets.
While outside the ambit of securities regulation, the task force could also advocate for a tax incentive for purchasing small business shares and consider mechanisms to assist small dealers access external capital — key measures to facilitate dealer intermediation.
Overlapping regulatory agendas call for constructive coordination between the task force, the CSA and the OSC to implement streamlined and more efficient rules, benefiting not just Ontario but Canada as a whole. This coordination is vital to harmonizing reforms, as the public and private markets are national in scope. The proposed CSA and OSC reforms can provide guidance on content and implementation. By the same token, the task force can act as an effective catalyst to reduce inertia.
As well, the task force could support the CSA’s passport system, a decision tied to the long-delayed and improbable launch of a national securities regulator. The task force could also consider the CSA’s objections to suggested amendments to certain provisions on enforcement.
The task force’s recommendations to achieve SRO consolidation could finally break the frustrating deadlock on progress. The debate is about competing visions of a consolidated SRO model, not on the principle of consolidation itself, which leaves hope for progress.
The task force has proposed a two-phased approach to the move toward a single SRO. The two existing SROs could work together to integrate an effective IIROC-MFDA model on an interim basis. This could be done quickly, with significant efficiencies recouped by the investment industry, particularly dual-platform firms. The second stage would be much more difficult, but possible solutions such as different registrations and rulebooks within the SRO could be considered. For this comprehensive phase, CSA leadership will be critical, as the SRO system is national and non-SRO registrants fall under the CSA’s regulatory ambit.
The task force has also made various suggestions to strengthen the confidence and protections of investors, such as a more effective SRO governance structure designed to provide greater stakeholder input in strategic and regulatory priorities. For example, the task force has proposed formal direct access to IIROC’s staff and board on procedures and practices. More engagement in SRO operations will improve investor and intermediary confidence in the SRO system. The task force has also proposed changes to review and revamp OBSI governance to give better input and direction to staff on needed resources and expertise to improve the calibre of OBSI decisions.
Finally, the task force has suggested an extensive overhaul of the proxy voting system to improve the input of corporate shareholders and strengthen the decision-making of public companies. The focus is on a proposed regulatory framework for proxy advisory firms and specific recommendations related to proxy voting rights.