Ontario government releases fall economic statement: Modernizing financial services
On November 6, 2019, the Ontario government released its fall economic statement, 2019 Ontario Economic Outlook and Fiscal Review: A Plan to Build Ontario Together (Fall Statement). This blog post focuses on measures of interest to the financial services sector.
Combating money laundering
The Province is evaluating further measures to combat money laundering. This stems from the June 2019 Finance Ministers’ meeting where the Ontario government agreed with the federal government, as well as other provinces and territories, to co-operate on initiating consultations to make beneficial ownership information more transparent. This will likely mean changes to the Ontario Business Corporations Act to require corporations to retain specified beneficial ownership information, such as information on all individuals with significant control, and to maintain that information. Similar legislation has already passed federally, has received Royal Assent in British Columbia and Manitoba, and has been introduced in Saskatchewan.
Modernizing financial services
The Fall Statement reiterates some of the Ontario government’s dominant themes, namely reducing the regulatory burden, delivering regulatory services more efficiently, and fostering a strong and competitive financial services sector, while also protecting the rights and interest of consumers. In particular, the Fall Statement restates the Financial Services Regulatory Authority of Ontario’s (FSRA*) commitment to regulatory effectiveness and burden reduction, which are the two overarching priorities in FSRA’s 2019-2022 business plan, and which are consistent with Ontario government’s 2018 plan to cut regulatory red tape by 25% by 2020.
Updating the credit unions and mortgage brokers regulatory framework
In furtherance of these modernization objectives, the government will be conducting a legislative review of the Credit Union and Caisse Populaires Act, 1994 (CUCPA), the Mortgage Brokerages, Lenders and Administrators Act, 2006 and the Co-operative Corporations Act.
With respect to credit union legislative reform, the Fall Statement notes that credit union competitiveness has been undermined by the aging CUCPA and the intent is that the new CUCPA will be principles-based (consistent with FSRA’s stated objective to be a principles-based regulator), and will reduce the regulatory burden on Ontario credit unions, enabling them to be more agile and competitive while meeting members’ needs.
Review of the credit union legislative framework is already underway, as comments on the consultation document A Modern Framework for Credit Unions in Ontario: Reducing Red Tape and Increasing Investment were due by August 16, 2019. Among other things, the consultation asked for input on: how to make it easier for credit unions to do business and compete in Ontario; dispute resolution processes and the need for an ombudsperson; regulatory treatment for centrals and leagues, noting that most Ontario credit unions are members of Central 1, a British Columbia central; a securitization and funding framework; business and investment powers, particularly in respect of investments in fintechs; access to capital; improving the consumer experience and consumer protection; unclaimed deposit framework; corporate governance; and enabling innovation.
Review of the mortgage broker legislation is also underway. The Report on Legislative Review of the Mortgage Brokerages, Lenders and Administrators Act, 2006 (Report), which is the outcome of the five-year statutory review of the Act, was released on September 30, 2019. The Report notes that the creation of FSRA represents an opportunity to “right-size” regulation for the sectors it oversees and included recommendations to: reduce red tape for commercial mortgage transactions; reduce the regulatory burden by establishing a new class of licensing; have specialized licensing education for brokers who deal and trade in areas of practice that require added knowledge and skills; and incentivize registration for private lenders.
We expect to see consistent themes emerge across the regulatory frameworks for the credit union and mortgage broker industries as the Ontario government and FSRA work to modernize legislation, harmonize and consolidate guidance and develop or adopt industry codes that reflect the common issues across these sectors.
Review of the Securities Act
In furtherance of these modernization objectives, the government will also be creating a securities modernization task force to review the Securities Act and to “create a modernized securities regulatory framework that is responsive to innovation and changes in a rapidly evolving marketplace”. This will be the first time that the Securities Act has been reviewed in over 15 years. Technically, the Securities Act requires that the Minister of Finance appoint an advisory committee to review securities legislation, regulations and rules relating to matters dealt with by the Ontario Securities Commission, generally, every four years after the appointment of the previous advisory committee.
However, no such review has been conducted since March 2000, when the Minister of Finance appointed an independent committee (the Five Year Review Committee), chaired by Purdy Crawford (at the time Counsel, Osler) to conduct the last review, which led to a final report dated March 21, 2003 [PDF] and released on May 29, 2003 [PDF]. The Securities Act also requires that the Minister of Finance and the OSC enter into a memorandum of understanding (MOU), which sets out both parties’ respective roles and responsibilities, every five years. There has similarly been no update to the current MOU since November 2009 [PDF].
While there has yet to be any indication from the government as to the specific composition of the securities modernization task force or the timetable for the completion of its work, its mandate will be to solicit input from stakeholders and help inform the government’s vision of creating a 21st century securities regulatory framework. In particular, it will be tasked with providing policy recommendations on areas deemed critical by the government, including driving competitiveness, regulatory structure, efficient regulation and investor protection.
The government also notes that it continues to work collaboratively with other participating jurisdictions on the Cooperative Capital Markets Regulatory System (CCMR). The anticipated launch of the Capital Markets Regulatory Authority (CMRA), of which Ontario will be a participating member, may, in part, explain the delay in launching a review of the Securities Act. In spite of the fact that work continues in this regard, commentators pushed for this review and did not see it as a barrier to the province undertaking its own initiatives. It is not yet clear how the review will interplay with work on the CMRA.
We will continue to watch for developments as the task force is constituted and developments unfold.
*Osler partner Lawrence Ritchie sits on FSRA's board of directors.