The Ontario Securities Commission (OSC) has identified regulatory burden reduction as one of its key priorities for the coming year. The Ontario government is taking an active, hands-on role in coordinating efforts with the OSC to ensure that this priority is advanced. The OSC recently established a Burden Reduction Task Force in coordination with the Ontario Ministry of Finance to identify ways in which the OSC could reduce regulatory burden for Ontario capital markets participants and announced a series of related roundtable discussions for stakeholders.

The March 27 roundtable was an introductory public consultation built around a dialogue between regulators and a variety of market participants. Two future roundtables will focus on burden reduction initiatives applicable to certain types of market participants:

  • May 6: Registration, compliance and investment funds
  • May 27: Trading, marketplaces, issuer requirements and derivatives

Some important themes at the March 27 roundtable were:

  • Regulatory requirements substantially increase operating costs which investors ultimately bear through diminished access to investment advice for smaller investors and delayed implementation of technological investments that would enhance the investor experience.
  • Market participants with new business models face challenges meeting regulatory requirements tailored to traditional models.

Panellists noted that operating and scaling an innovative business in a traditional regulatory environment can feel like fitting a round peg into a square hole, since new business models must often be approved through costly and time-consuming regulatory exemption application processes with uncertain outcomes. Know Your Client (KYC) questions in the robo-advisor context were cited as one regulatory requirement that is more suited to the traditional model of in-person meetings between clients and advisors than to investors accessing online investment solutions premised on minimal advisor interaction.

Panellists also called for regulators to institutionalize burden reduction efforts and create a culture of constant internal review of the rules in order to enhance marketplace confidence that the rule making process strikes an appropriate balance between investor protection and market efficiency. The OSC was encouraged to take a holistic approach to burden reduction, to adopt changes which would streamline the compliance process for issuers while protecting investors, instead of simply reducing the number of rules.

Stakeholders requested more direct contact between staff of the regulator and market participants to aid in understanding and tailoring rules over time. Regarding specific areas for focus, panelists discussed the right balance between too much or too little regulatory guidance. The consensus was that guidance is an important tool for clarifying regulatory expectations and facilitating responses to compliance reviews.

Suggestions for the OSC included:

  • In the context of continuous disclosure reviews, designating staff relationship reviewers so staff can become familiar with issuers' filings and take a consistent review approach over time.
  • Avoiding multiple regulator involvement in the same enforcement proceedings.
  • Increasing communication during reviews to mitigate the cooling effect of long silent periods while they review proposed corporate actions.
  • Lengthening the 10-day outside business activity reporting requirement to encourage more outside business activity.
  • Tying the frequency of risk assessment questionnaires to perceived risk presented by market participant activities.
  • Avoiding rule implementation delay which can be challenging for issuers that, in anticipation of new rules, must develop internal systems to comply with both old and new reporting requirements.

Members of our Securities Regulation and Investment Products Group will attend the two upcoming roundtables and post again.

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