a man interrupts a cascade of falling dominoes

The Ontario government should pause its planned Capital Markets Act reform, the C.D. Howe Institute says, calling draft legislation a “rewarmed version of a decade-old proposal” that doesn’t fit current needs.

The Progressive Conservative government released its proposed new Capital Markets Act (CMA) for public comment in October. The CMA would spin out the Ontario Securities Commission’s (OSC) adjudicative function into a separate tribunal, separate its chair and CEO roles, and strengthen the regulator’s enforcement power.

The draft legislation is out for comment until Jan. 21

Rather than introducing new legislation, author Harvey Naglie wrote in a C.D. Howe Institute memo, the government should amend the existing Securities Act and then take a more strategic approach to further changes.

Naglie, a financial services veteran who served as a senior policy advisor in the finance ministry under the previous government, said the CMA is repurposed from legislation that was developed in 2014 as provinces were looking to integrate securities acts under the national regulatory initiative.

That initiative effectively ended earlier this year.

Adopting the CMA now would “jeopardize a once in a generation opportunity to implement a bona fide forward-looking securities act,” Naglie wrote. The act’s focus on regulating sales practices and protecting investors through disclosure is outdated, he added.

For example, he said, “This model is not fundamentally designed to effectively regulate a capital markets environment where fintech and regtech are redefining the boundaries among financial services and products; where the regulatory flashpoint is advice delivery rather than a securities transaction; where salespeople and portfolio management are being supplanted by robo-advisors and artificial intelligence; where advisor compensation and motivation is more fee-based than commission based; where ESG and diversity are redefining the calculation of financial risk and return; and where investors need more and better financial awareness and regulatory safeguards.”

The government is already making a number of changes to the OSC, including new mandates to focus on reducing the regulatory burden and to foster competition and capital formation.

Naglie said the government should wait to see how those changes play out before pursuing a more significant overhaul.

When the government announced its proposed legislation in October, it said the CMA would retain important elements of existing rules while modernizing the act and introducing more flexibility.

“Modernizing capital markets will give our province a competitive edge and play a critical role in attracting global investment, supporting economic growth and innovation, and creating good jobs,” Finance Minister Peter Bethlenfalvy said in a statement.