Ontario Legislative Building at Queens Park in Toronto Ontario
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Re: Investment Executive May 2022 editorial, Is that all for capital markets modernization?

This editorial expresses concern that nothing more will come of the Capital Markets Modernization Taskforce since it tabled its final report in January 2021. While comprehensive modernization of securities regulation has reached the end of the road, at least for the foreseeable future, disappointment rests on a mistaken presumption.

The task force, launched in February 2020, wasn’t expected to introduce sweeping reform or a fundamental makeover of the Ontario financial sector. Rather, it was part of a periodic review and incremental adjustment to the legislation and regulations of the Ontario Securities Act, to better conform to changes in investor behaviour and capital markets. This exercise was similar to other statutory updates in past years, albeit this time after a long delay since the last review in 2002, because of the effort to create a cooperative national securities regulator.

The task force has now completed its mandate. The needed structural changes to the regulatory framework are completed or underway, with the market impact gradual as the recommendations are implemented over time.

In particular, the mandate of the Ontario Securities Commission was extended beyond investor protection to fostering competitive and efficient capital markets, and capital formation. Further, the regulatory and adjudicative roles of the commission have been divided, with separate executive oversight. And the long-suggested integration of the two self-regulatory organizations, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada, to capture efficiencies and synergies is well underway. It will now be seen whether self-regulation will be broadened to include managed investment funds and exempt market dealers.

The second task force initiative was to bring forward specific reforms to improve efficiencies and streamline regulation related to the capital-raising process and disclosure requirements, as well as to overhaul the proxy voting rules. Many of these key recommendations for regulatory efficiencies coincide with and will reinforce ongoing efforts of the Canadian Securities Administrators that will continue through the consultative process.

The final concern of the task force, which came to light in public consultations, was the institutional imbalances in Ontario markets — in terms of size and breadth, competition and innovation — at the expense of small financial institutions and small and mid-size businesses. However, the task force recognized that realistic remedial solutions, such as prohibiting tied selling in underwriting transactions and widening the product shelf of larger financial institutions, are limited. These controversial proposals are bogged down in the actual mechanics.

There is not much more the task force can do to modernize the regulatory framework of the Ontario capital markets, at least for the time being, given structural realities influencing competition. The best the Ontario government can do on the regulatory front is to monitor and encourage securities regulators to implement the task force recommendations.

The Ontario government should continue to hold its overall policy objective to promote small and mid-size enterprise growth in the province, encouraging capital formation, investment spending and economic growth. The policy priority going forward should shift from securities reform to fiscal and tax measures, including the critical task of managing the province’s public finances and implementing targeted investment incentives to promote investment spending in the business and technology sectors.

Ian Russell is a partner with Russell Deacon & Co. and past president of the Investment Industry Association of Canada.