The Ontario Capital Markets Modernization Taskforce1 (the "Taskforce") published [PDF] its final report on January 22, 2021 (the "Final Report"). The Final Report outlines a broad range of recommendations responding to the Taskforce's mandate to "review the current status of Ontario's capital markets" and is intended to modernize and enhance the efficiency and competitiveness of Ontario's capital markets. The publication of the Final Report follows the release [PDF] of the July 9, 2020 report (the "Consultation Report"), which the Taskforce sought public comment on in the summer of 2020.
In total, the Final Report contains 74 recommendations that are stated to be aimed at strengthening the vibrancy and competition of Ontario's capital markets, while also enhancing the attractiveness of Ontario markets internationally. The Taskforce also noted that the recommendations were all created through the lens of investor protection.
The Final Report as a whole reads much like a consultation paper, summarizing the observations of the Taskforce, or those with whom it has consulted, as a basis for its somewhat sweeping proposals.2 The Final Report states that the Taskforce consulted with over 110 stakeholders and received 130 comment letters, although those have not been made public by the Taskforce (a limited number of commenters, including Osler, have made their own comment letters publicly available).
Once again, we applaud the Taskforce for its efforts, recognizing the many months spent in developing and refining the Final Report. There are many proposals contained in the Final Report that we fully endorse and support. At the same time, however, we had hoped that the Final Report would have taken into consideration more of the feedback received during the consultation process, and better highlight the empirical basis for many of its proposals.
The Taskforce points to a number of trends identified by stakeholders that are reflected in the recommendations. These include:
- the importance of public markets;
- the decline of primary markets;
- the rise of private markets;
- noticeable exempt market activities;
- the decline in active independent investment dealers;
- opportunities in the market for retail products, competition and innovation;
- increased investor interest in environmental, social and governance (ESG) factors;
- progress in achieving diversity;
- increased shareholder activism;
- the need for enhanced enforcement and investor protection;
- the COVID-19 pandemic's impact on the markets;
- the importance of a modernized capital markets regulatory framework; and
- the Cooperative Capital Markets System ("CCMR") initiative.
The first recommendation in the Final Report is to replace the Ontario Securities Act with the CCMR-sponsored Capital Markets Act. If successfully implemented, this recommendation will effectively act as the legislative vehicle to implement the remainder of the recommendations.
The other 73 recommendations, the highlights of which are summarized below, are organized within six broad headings:
- Improving Regulatory Structure;
- Regulation of a Competitive Advantage;
- Ensuring a Level Playing Field;
- Enhancing Proxy Systems, Corporate Governance and Mergers and Acquisitions;
- Fostering Innovation; and
- Modernizing Enforcement and Enhancing Investor Protection.
While some of the recommendations in the Final Report stand on their own, others are intertwined within a broader set of proposed reforms. Further, while several recommendations call for prompt implementation, others suggest (and in many cases, merit) a need for more consideration and assessment and, presumably, could require more detailed public consultation both within Ontario and across the Canadian Securities Administrators ("CSA") member jurisdictions. Given its ambitious scope and the relatively brief time frame in which the Taskforce completed this exercise, whether one agrees with all, some or none of the recommendations, it is an important contribution to the broader conversation, making numerous proposals that touch on many aspects of Ontario's capital markets.
Many of the recommendations in the Final Report address issues widely recognized as needing to be addressed, such as the observed desire for a separation of the OSC's tribunal from its regulatory functions and proposed changes to streamline reporting requirements for Ontario reporting issuers. Conversely, other recommendations raise relatively novel and polarizing issues, such as those proposals intending to "level the playing field" and add "competition" to the statutory mandate of the regulator. In some respects, these proposals fly in the face of a general trend of reducing regulatory burden, by imposing more obligations on issuers. Many of the recommendations suggest granting the OSC more powers or rule making authority, though the Final Report does not include an overall justification as to how broadening authority generally will advance a market growth priority. While covering a significant amount of ground on the need for perceived changes to governance and the substantive law, there was limited commentary on issues related to culture, decision making processes, regulatory approach and engagement and relationship with various stakeholders (including investors). These latter matters have been identified as an important stated current priority of the OSC, and one which its staff and leadership have devoted significant time and attention to in recent years. Please see our blog post on the OSC's Statement of Priorities here.
As previously reported, Osler expressed its views on the 47 proposals contained in the Consultation Report. The common thread woven throughout our letter was the importance of harmonization of securities laws in Canada. The current Canadian model of separate securities regulatory authorities in each provincial and territorial jurisdiction necessitates common action to advance policy objectives that have the potential to affect capital markets participants. Our comments strongly encouraged the Taskforce to view Ontario securities regulatory requirements with regard to reform initiatives towards modernization that have been taking place in the United States and globally, and the need for harmonization of capital markets within Canada. While the Final Report does make some references in favour of harmonization for certain of the recommendations, its general tenor focuses on the advancement of the Ontario capital markets, which is understandable given that the Taskforce was mandated by the Ontario government to review the Ontario capital markets. The other CSA member jurisdictions have since noted their concerns with this focus.3
By its own terms, the Final Report reflects the observations and policy proposals of the independent Taskforce. It is explicitly noted that "the views, opinions and recommendations expressed in this document are solely those of the Taskforce and are not made on behalf of the Government of Ontario" and "do not necessarily reflect the official policy, position or views of the Government of Ontario". Moreover, the Final Report disclaims that the recommendations are not "reflective of the views or positions of the Expert Advisory Group or endorsed by its members".
It is unclear what the next steps will be in the reform initiative and whether all, or some, of the Final Report will be acted upon, and over what period. One of its proposals calls for a more regular review of the Securities Act and the Regulator. We agree that this would be desirable considering that, despite the fact that regular review is already prescribed in the Securities Act, this is the first formal review undertaken in over 15 years. Given the complexity of many of the other proposals, we strongly encourage the Ontario government to thoughtfully consider and consult on any changes before simply adopting the proposals in their current form. Regardless, as noted above, the Final Report is a valuable contribution to policy thought leadership.
Attached [PDF] as an appendix are some of the highlights of the key recommendations found in the Final Report. As a summary of an over 110-page report, this is necessarily concise.
1 Lawrence Ritchie was a member of the Capital Markets Modernization Taskforce advisory group. The views expressed in this article do not reflect those of any other members of that advisory group.
2 As at least some of the self-published prior comment letters have indicated, some of the recommendations remain controversial (some highly so), with a lack of consensus amongst investors and market participants as to their desirability, or even the basis for their need. Unfortunately, in many cases the more controversial proposals remain as originally drafted, which raises concerns about the viability of the recommendations. For instance, a recent Financial Post editorial noted that "the task force packed 70 recommendations into 115 pages, or roughly one recommendation every 1.5 pages, a compact formula that fails to offer the kind of detail and analytical depth needed to support the recommendations".
3 See CSA Open Letter response - https://www.securities-administrators.ca/uploadedFiles/General/pdfs/CSAResponse_CMModernizationTaskforceFinalReport_eng.pdf
Originally Published by Osler Hoskin, February 2021
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