The Ontario Capital Markets Modernization Taskforce (Taskforce) recently released its final report (Final Report) outlining over 70 recommendations aimed at modernizing Ontario's capital markets regime. The Final Report follows the Taskforce's initial consultation report and is the culmination of consultations commenced in February 2020 to improve Ontario's regulatory structure, ensure a level playing field, foster innovation and enhance enforcement and investor protection. The Taskforce's enforcement-related recommendations are the most comprehensive in a generation and include significant proposed changes to the Ontario Securities Commission's (OSC) governance structure, as well as a broadening and strengthening of the OSC's enforcement and collection powers.
One of the Taskforce's key recommendations is the bifurcation of the OSC's current regulatory and adjudicative functions. The Taskforce proposes the creation of a distinct adjudicative tribunal (Tribunal) to operate within the OSC. The Tribunal would focus on adjudicative proceedings informed by policy directives set by its regulatory complement. Tribunal members would be appointed by the Lieutenant Governor in Council upon recommendation of the Minister of Finance for up to five years and would not serve on the OSC's Board of Directors (Board), as commissioners currently do. The Board would focus on overseeing the OSC's regulatory mandate.
Consistent with these changes, the Taskforce recommends separating the currently combined Chair and CEO positions into two roles. The CEO would focus on enforcement matters and retain the ability to make and delegate Investigation Orders, while the Chair would assume a more traditional governance role.
INCREASED ENFORCEMENT, FINE AND COLLECTION POWERS
Notable proposals with respect to the OSC's enforcement powers include expanding civil liability for misrepresentation in offering memoranda to include key actors responsible for the issuer's disclosure (such as an issuer's directors, promoters, influential persons and experts), as well as giving the OSC the authority to adapt prospectus liability to address regulatory gaps from new and evolving financing structures. The Taskforce further recommends empowering provincial courts to issue record production orders requiring third parties that are not under investigation by the OSC, but have possession or control of relevant information, to deliver such information to an authorized enforcement investigator.
The Taskforce proposes a significant increase in the maximum fines for contravention of the Ontario Securities Act (Act). Specifically, it proposes an increase in the maximum administrative monetary penalty that can be imposed from C$1 million to C$5 million per contravention of the Act and an increase in the maximum fine for quasi-criminal offences from C$5 million to C$10 million.
To overcome challenges in collecting monetary sanctions, the Taskforce proposes giving the OSC the enhanced ability to freeze, seize or otherwise preserve property, including property transferred to family members or third parties below fair market value. The OSC would also be able to seek orders from the Court to hold such parties jointly and severally liable for such property, and to register a lien for any disgorgement amount owed to the OSC to establish priority over other claims.
HARMONIZATION AND STREAMLINING OF ENFORCEMENT
The Taskforce suggests harmonizing the efforts of the OSC with those of other government entities, including intra-provincial agencies and ministries, to streamline and enhance its enforcement and collection capabilities. The Taskforce encourages cooperation between the Courts and ministry databases to increase collection of monies owed to the OSC, including through limiting access to drivers' licenses and license plates for failures to pay fines or penalties.
The Taskforce recommends automatically reciprocating any sanction orders resulting from contested hearings and settlements involving other Canadian capital market regulators and giving the Tribunal the discretionary authority to reciprocate orders of foreign courts without a hearing in place of the current system, which requires a commission hearing whenever reciprocation is sought.
With the release of the Final Report, it is now up to the Ontario government to review and consider the Taskforce's recommendations, including with respect to the fundamental structural changes discussed above and matters of enforcement. It remains to be seen how these recommendations will be received by the government and capital markets stakeholders.
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