The OSC’s regulatory and adjudicative functions will be separated.Melissa Tait/The Globe and Mail
The Ontario government plans to move ahead with an overhaul of the Ontario Securities Commission, pushing an expanded mandate for the regulator and proposing a drastic reconfiguration of its internal governance structure.
The proposed reforms to Canada’s largest regulator were contained in the province’s 2021 budget and will be undertaken through special legislative amendments.
Specifically, the government will adopt a number of recommendations made in a January report by the Capital Markets Modernization Taskforce, a commission that was created in late 2019 with the goal of reviewing Ontario’s securities laws and reviving competition in capital markets.
One of the recommendations that will be implemented is to widen the mandate of the OSC to include “fostering of capital formation and competition in capital markets.” This will add to its current mandates of providing protection to investors from unfair or fraudulent practices and ensuring efficient capital markets.
The task force had proposed the OSC have a capital markets formation and competition mandate like regulatory authorities in Britain, Singapore and Australia, in order to address overregulation, fees and anti-competitive behaviour in domestic markets. It had also proposed changing the name of the OSC to the Ontario Capital Markets Authority, a proposition the government decided not to pursue.
The government is also adopting a proposal that will see the role of chair and chief executive officer at the OSC be separated. A board of directors, led by the chair, will assume the role of providing oversight of the governance of the OSC, while the CEO will be in charge of executing the OSC’s new mandate.
The OSC’s regulatory and adjudicative functions will also be separated. Currently, OSC commissioners serve the dual role of presiding over hearings and enforcing securities laws, as well as sitting on the OSC’s board. But the task force report indicated there was discomfort among stakeholders about the lack of boundaries between the regulatory and adjudicative functions of the OSC.
The new rules will now completely delineate these two functions and create a new adjudicative tribunal to be managed by a chief adjudicator. There will be no tribunal members that also serve on the board of directors.
Over all, Wednesday’s budget addressed four of the 70-odd recommendations made in the January report by the task force.
All of the recommendations that the government has green lit in Wednesday’s budget relate to reforming the role of the OSC. The task force report, however, had consisted of numerous propositions beyond that, including rule changes to curb “naked” short-selling, banning misinformation that can significantly affect stock prices, and levelling the playing field for independent dealers when competing with the country’s largest financial institutions. The budget document said the OSC is studying other recommendations, but it does not commit to which, if any, will be adopted.
Walied Soliman, chair of the task force and a partner at Bay Street law firm Norton Rose Fulbright, told The Globe and Mail he was “thrilled” at how quickly the provincial government had moved to adopt recommendations made by his group around reforming the OSC.
“Expanding the OSC’s mandate, in particular, sets the stage for addressing many or all of our recommendations in the report. This is the biggest step forward for Ontario’s capital markets in modern history,” he said.
The province also confirmed, in Wednesday’s budget, that it would move ahead with creating a new Capital Markets Act, building on an existing piece of legislation that was drafted but never enacted by the federal Conservative government under Stephen Harper when it was pushing for a single national securities regulator. The new CMA will replace the current Securities Act and Commodities Futures Act that govern Ontario’s securities legislation, and will involve consulting with various stakeholders over the next few months.
Mr. Soliman said he expects many of the task force’s recommendations on reforming capital markets to be included in this new act. “I think it is going to be a busy summer and I certainly look forward to being heavily involved in the review of the new CMA,” he said.
Meanwhile, the OSC announced Wednesday it had extended the term of its current chair and CEO, Grant Vingoe, until next April as it transitions into a new governance framework that will separate the chair and CEO roles.
The regulator has begun analyzing many of the recommendations made by the task force, but the budget document states a special emphasis has been placed on a proposal that forces companies to disclose material information related to environmental, social and governance principles, especially climate-related disclosures.
Kevin Thomas, CEO of the Shareholder Association for Research and Education, an investor protection group, said he was particularly disappointed there wasn’t more in the budget around the adoption of diversity targets by companies. “Mandating companies set diversity targets and achieve them had pretty broad support by issuers and investors,” Mr. Thomas said.
The task force’s final report in January, however, had backed away from an initial proposal to compel public companies to meet diversity targets, in favour of a “market-driven” diversity framework where shareholders were responsible for holding companies to account for their performance, or lack thereof, on diversity.
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