As reform initiatives pile up at the Ontario Securities Commission (OSC), critics are beginning to wonder whether its agenda has become overloaded.
Each year the OSC is required to publish for public comment a report setting out its priorities for the coming fiscal year. The regulator’s to-do list is always long, but feedback on its latest inventory of projects is raising fears about whether it’s become unmanageable.
The regulator’s mandate was recently expanded to include promoting capital formation and competition alongside its traditional objectives of ensuring investor protection and fair and efficient markets. Safeguarding financial stability was added in the wake of the global financial crisis.
“This enlargement of the OSC’s remit has led to a proliferation of priorities, which in turn creates two risks: first, that nothing can get completed in a timely way when the top of the agenda is clogged; and second, that so many competing mandate elements may yield an incoherent mash-up of conflicting priorities,” the OSC’s independent Investor Advisory Panel (IAP) stated in a submission.
The commission’s agenda for the coming year, which runs from April 1 to March 31, 2023, runs the risk of gridlock and confusion, the IAP warned.
The regulator’s new mandate isn’t the only reason for its bloated itinerary. The agency is also in the midst of a restructuring that will separate its adjudicative function into a new tribunal and overhaul its governance. It’s also facing the possible introduction of a new legislative model — the government’s proposal to replace the Ontario Securities Act with a new Capital Markets Act that would reset the balance between law and regulation.
Along with the rest of the Canadian Securities Administrators (CSA), the OSC also is taking on the remodelling of the self-regulatory system, which the IAP suggests should sit at the top of the regulator’s agenda.
“In our view, [SRO reform] is one of the most impactful and important initiatives in development right now,” the IAP submission stated. “Its execution should be an up-front priority for the commission.”
All of this is taking place as regulators grapple with new frontiers such as the emerging cryptoasset sector; long-standing issues such as climate change and diversity; and demands for reform in core areas such as product regulation and financial reporting.
“The implied workload necessary to deliver on all the identified priorities is neither manageable nor realistic,” warned investor advocate Kenmar Associates in its submission. “When everything is a priority, nothing is a priority… Investors want concrete results and accountability, not pie in the sky promises.”
Kenmar added that it’s “very uncomfortable with the changing culture of the OSC and the diluted focus on protecting Ontarians from unfair, improper or fraudulent practices.”
Institutional investor group the Canadian Coalition for Good Governance (CCGG) also expressed concern that the regulator’s expanded agenda “has the strong potential to put the OSC into conflict with its long-standing mandate to ensure effective investor protection.”
The CCGG’s submission called on the commission to explain how it intends to balance its potentially conflicting mandates.
Some commenters also are seeking detail on just what the OSC can realistically expect to accomplish. The IAP said “accountability must remain paramount” through the transformation, with “measurable goals and objectives.”
The Canadian Advocacy Council of CFA Societies Canada (CAC) suggested that the OSC should be more transparent about its plans for modernizing regulation and facilitating industry innovation. “Any specific actions and timelines for engaging and supporting novel businesses…would be helpful,” it said.
Additionally, several commenters — including the Portfolio Management Association of Canada and Fidelity Investments Canada ULC— warned against speeding up policymaking in the face of the OSC’s increasingly overstuffed docket. The proposed securities legislation would cut the standard public comment period from 90 to 60 days. Some stakeholders were concerned about their own capacity to keep up with initiatives.
Simultaneous or overlapping consultations would risk “reducing the quality, thoughtfulness and completeness of the responses which will ultimately undermine the efficiency and effectiveness of the regulatory framework,” the CCGG’s submission stated.
There also are concerns about policy being developed on the fly in emerging sectors.
While a handful of firms have now secured regulatory approvals to operate in the crypto space, Toronto-based Wealthsimple Inc. — the first regulated firm in the area — said it’s concerned about the large number of unregistered firms operating in the sector.
With regulators crafting conditions for firms’ registrations on a case-by-case basis, the rules for cryptoasset trading platforms are being developed “without transparent public consultation,” the firm said, and could result in “inconsistent” regulation.
The traditional financial industry is also demanding rules that accommodate innovation. In its submission, Fidelity said it sees “digitalization” — including electronic filing, online disclosure delivery and e-signatures — as “critical” to the industry’s future, particularly for the retail investment business.
The firm called on the OSC to develop regulation that enables an increasingly digital experience for investors.
However, the IAP warned that regulators may not be capable of overseeing tech-driven innovation.
“Complex skill sets combining knowledge of regulatory requirements, computer science (particularly artificial intelligence and machine learning) and data management are needed to ensure this innovation supports fair and efficient capital markets and competition, without undermining investor protection,” the panel said.
Ensuring that the OSC develops capacity in this area is another key challenge, the IAP noted.
Industry proficiency requirements may have to evolve as well. Given the growing complexity of the industry and markets, the CAC recommended the OSC (along with the rest of the CSA) “prioritize ensuring that all gatekeepers to the capital markets are adequately prepared for this complexity and innovation.”