Risk Management and Crisis Response Blog

Osler comments on Capital Markets Modernization Taskforce consultation report

Sep 14, 2020 4 MIN READ
James R. Brown

Partner, Corporate, Toronto

On September 7, 2020, in a comprehensive letter to the Government of Ontario Capital Markets Modernization Taskforce (the Taskforce), we expressed our views on the 47 proposals of the Taskforce contained in its July 9, 2020 consultation report. As we previously reported, the Taskforce was formed to make recommendations to the Minister of Finance regarding the effectiveness and competitiveness of Ontario’s capital markets. The Taskforce sought comments by September 7, 2020 with a view to delivering a final report to the Minister of Finance by the end of 2020.

We are highly supportive of the Government of Ontario’s efforts to review and modernize Ontario’s capital markets and the Taskforce’s work toward regulatory proposals in Ontario in a manner that will achieve that goal. We also agree that capital formation and investment within Ontario should be balanced with effective investor protections but should not be impeded by an outdated or overly burdensome regulatory environment.

In our comment letter, we have highlighted those proposals that we support of and those that we oppose. Among others, we have highlighted the importance of the U.S. capital markets to the success of Ontario issuers. With the success of capital markets regulatory reform initiatives in the United States, we believe it is important to adopt similar reforms to align Ontario securities regulatory requirements with the modernizations that have been taking place in the United States. We also support many of the balanced enforcement proposals.

The Consultation Report outlines a number of policy initiatives that would benefit the Ontario capital markets. At the same time, certain of the proposed recommendations would increase the regulatory burden on certain capital markets participants and that increased burden would appear to outweigh any potential actual or perceived benefits to investors or the integrity of the market. We do not believe that the call to “level the playing field” is necessarily in the best interests of investors, issuers or even smaller market participants who believe they have the most to gain, without appreciating that they too will suffer if the result is to weaken the strength, reputation and global competitiveness of Ontario’s capital markets. Any new regulation designed to advantage one particular group must be carefully examined in terms of its overall objectives and the detriment to other capital markets participants and to the attractiveness of Ontario as a marketplace. These considerations also apply to the Taskforce’s proposed governance and enforcement reforms.

To be effective, discretionary decision-making and  enforcement efforts need to be clear in their direction and application, be proportionate, fair and transparent and be seen to be so. Enforcement and compliance initiatives and approaches ought to clearly reflect and promote the regulator’s mandate and articulated priorities, for which it is accountable to the government as well as investors and market participants it serves. 

While we recognize that the Taskforce’s mandate was to make recommendations to the Ontario government for potential changes to improve the Ontario capital markets, we strongly encourage the Taskforce to consider its recommendations more generally with a view to harmonization of capital markets regulation nationally, given the importance and influence of Ontario’s capital markets to Canada as a whole.  A harmonized approach to regulation is critically important to the success of Canadian issuers and we are wary of changes that would only impact regulation in Ontario without changes being made more broadly and uniformly across the country following consultation with Canadian Securities Administrator (CSA) partners.

Finally, many Taskforce recommendations raise significant policy considerations that require significantly more time for consideration and consultation to ensure that the Taskforce’s recommendations are aligned with the consultation work and burden reduction initiatives already underway in Ontario and across the CSA. We do not believe that Ontario capital markets participants have had sufficient time to fully consider and address the Consultation Report and would encourage empirical study of the underlying drivers of many of the proposals, cost/benefit analyses of several of the proposals and further consultation with all Ontario capital markets participants.

Our comment letter is available here [PDF].

Note: Osler Partner and Chair of the Risk Management and Crisis Response practice, Lawrence Ritchie, is a member of the advisory committee of experts to the Taskforce.