The Ontario government has fallen short in its obligation to review provincial securities regulations every five years. Securities regulation in Ontario has not been reviewed for 16 years.
The government’s prolonged inaction regarding the review of this legislation, and its inaction toward the formal relationship between the Ontario Minister of Finance and the Ontario Securities Commission (OSC), raises concerns about accountability, according to several experts in securities law.
“When an administrative body has been given the power to make law — which is what the OSC has been given — you want a periodic review of that by elected officials to ensure that we’re comfortable that power is being exercised as it should be,” says Robert Yalden, corporate law and finance professor in Queen’s University’s faculty of law in Kingston, Ont.
Neil Gross, president of Toronto-based Component Strategies Consulting, writes in an emailed response to questions from Investment Executive about the delay in conducting a review: “What’s still needed is periodic stepping back to consider comprehensively whether [securities commissions’] statutory mandates are the right ones, and whether they’re producing optimal outcomes for the public. We’re certainly overdue for that.” Gross is also chair of the OSC’s Investor Advisory Panel.
The Securities Act requires that the Minister of Finance appoint an advisory committee to review securities legislation every five years. However, the most recent such review finished in March 2003, when a committee chaired by Purdy Crawford released a comprehensive report.
The act also requires that the finance minister and the OSC review their memorandum of understanding (MOU), which sets out both parties’ respective roles and responsibilities, every five years. The parties have not formally reviewed the current MOU since November 2009.
In an emailed response to Investment Executive, a spokesperson for the Ministry of Finance did not address questions about the statutory requirements; instead, the email stressed the government’s commitment to “creating a globally competitive, efficient and strong capital markets regulatory system.”
The OSC did not respond to emailed questions from Investment Executive regarding a review of securities legislation or a new MOU.
There could be several reasons for the extended delay in launching a review of securities legislation. The government and the OSC are focused on other priorities, including reducing the regulatory burden and cutting red tape.
Further, any review undertaken by Ontario might lead to legislative changes that would have implications for other provincial and territorial securities commissions, which co-ordinate on harmonizing rules through their collective membership in the Canadian Securities Administrators.
Yalden says the consideration may be, “Let’s not rush exercises in major overhauls of our legislation because it has complicated knock-on effects.”
Another reason for the extended delay may be the anticipated launch of the Capital Markets Regulatory Authority (CMRA), Canada’s proposed national securities regulator, of which Ontario will be a participating member. The launch would negate the need to commence a comprehensive and lengthy review at this time.
“You’re not going to have Ontario running off on its own when the national legislation is being developed co-operatively among the participating provinces with the accountability mechanisms proposed by the feds,” says Philip Anisman, a securities lawyer in Toronto who completed a two-year term as a member of the commission of the OSC last year.
British Columbia, Nova Scotia and New Brunswick — three other provinces participating in the CMRA project — also have not launched reviews of their securities legislation in recent years. However, those provinces’ securities acts do not mandate periodic reviews.
The securities act for Quebec, which is not a participating province in the CMRA project, does require five-year reviews. Quebec last performed a review in 2014 and is in the beginning stages of a new review, says Jacques Delorme, spokesperson for Quebec’s Ministry of Finance.
Rebecca Cowdery, a partner and securities lawyer with Borden Ladner Gervais LLP in Toronto, says that when Ontario granted the OSC rule-making powers in 1994, legislators deemed that securities legislation and the OSC’s role be reviewed periodically. Prior to that, the OSC issued policy statements, which the courts found did not have the force of law.
“The [review] provisions were considered an important oversight mechanism for the rule-making and self-governing powers that the OSC was given,” Cowdery says.
Gross suggests, however, that the five-year requirement “isn’t particularly ideal anymore, given the accelerating pace of change affecting capital markets, investors and the investment industry.” He adds that circumstances dictate the need for continual evaluation of regulatory effectiveness, which is currently “being done by the securities commissions on an initiative-by-initiative basis and also through the efforts to reduce regulatory burden.”
Ian Russell, president and CEO of the Investment Industry Association of Canada in Toronto, suggests there is an increased likelihood that Ontario will choose to proceed with a review of securities legislation soon.
“There is very little confidence that a co-operative regulator is going to be around for at least another five years — that’s my guess,” Russell says. “I think the case for a full review is there.”
Last year, the Supreme Court of Canada gave its constitutional blessing to the CMRA system, which also includes Saskatchewan, Prince Edward Island, Yukon and the federal government as members, thus clearing the way for the project to proceed.
Participating provinces still are discussing timelines for the national regulator’s launch, according to Frank Switzer, spokesperson for the Capital Markets Authority Implementation Organization, who wrote in an email to Investment Executive: “The objective is to proceed in a manner that provides certainty to all involved and to take the time necessary to provide a smooth transition for market participants.”