Bulletin

Ontario Government “Budgets” a Few Words for Capital Markets Modernization

Authors: Jennifer F. Longhurst and Jordan Lavi

The Ontario government’s 2021 budget was delivered on March 24, 2021. Although there was no doubt that the focus of the budget would be on the ongoing health concerns and economic impact of the COVID-19 pandemic, market participants wondered whether it would address the recommendations in the final report of the Capital Markets Modernization Taskforce (Taskforce) released in January 2021. The government has confirmed its intention to move forward with a handful of the Taskforce’s recommendations – including some controversial ones – but we will have to wait and see which of the others will be adopted (and in what form) and which may be left on the cutting room floor.

In the 2021 budget, the government committed to implementing four of the 74 recommendations set out in the Taskforce’s final report – namely,

  • expanding the mandate of the Ontario Securities Commission (OSC) to include competition and capital formation;
  • separating the OSC chair and chief executive officer position into two distinct roles;
  • separating the regulatory and adjudicative responsibilities of the OSC; and
  • publishing the draft Capital Markets Act (CMA) for stakeholder consultation in the coming months.

Neither the separation of the OSC chair and chief executive officer positions nor the bifurcation of the OSC’s regulatory and adjudicative responsibilities is particularly controversial, although some of the details concerning the latter will need to be carefully considered before implementation.

However, the Taskforce’s recommendation to expand the OSC’s statutory mandate to specifically include competition and capital formation has been the subject of much debate. Critics argue that the OSC’s mandate (and the fundamental principles the OSC must consider in carrying out that mandate) is already sufficiently broad to enable it to implement rules and policies to promote capital formation; expanding it could upset the delicate balance that the OSC has struck between fostering fair and efficient capital markets, on one hand, and investor protection, on the other. The government’s decision to proceed with this recommendation is all the more surprising in light of the objections raised by the provincial and territorial securities regulators that constitute the Canadian Securities Administrators (CSA). In an open letter in February 2021, the CSA (excluding the OSC) noted that the “emphasis of this Recommendation and the commentary surrounding it in the Report without commensurate attention to investor protection, is of concern and should be approached with caution” and that “[t]his harmful imbalance could also jeopardize CSA’s sound policy-making approach and introduce risk of disharmonization.”

The decision to publish the draft CMA for consultation in the coming months is also noteworthy, given that the legislation has, as far as we know, remained untouched since 2015 when comments were last submitted. In addition to the significant transition costs and upheaval associated with the CMA’s adoption, a number of thorny issues will need to be addressed, including how exactly it will intersect with the securities laws of other Canadian jurisdictions and its implications for any national regulator. Despite the significance of this recommendation, it was not included among the proposals on which the Taskforce consulted in July 2020, appearing for the first time in the Taskforce’s final report to the surprise of many market participants.

In addition to these recommendations, the Ontario government has noted that the OSC is conducting its own analysis to inform its regulatory consultation process on the Taskforce’s recommendations that fall within the purview of the OSC’s rules. Of these, only a recommendation to mandate climate-related disclosure that complies with the Task Force on Climate-related Financial Disclosures recommendations (one of many available frameworks for climate-related reporting) was specifically identified. The budget notes that the OSC will begin policy work to inform further regulatory consultation on environmental, social and governance disclosure later this year.

For our commentary on many of the Taskforce’s recommendations, including those above, please refer to our September 2020 comment letter.

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