Ontario's Capital Markets Modernization Taskforce (the Taskforce)1 received a show of confidence from the Government of Ontario through the release of its 2021 Budget, where it announced that it would be moving towards implementing some of the Taskforce's recommendations.
On March 24, 2021, the Government of Ontario released its 2021 Budget under the leadership of Minister of Finance, Peter Bethlenfalvy. The 2021 Budget focused on two priorities as the COVID-19 pandemic continues to unfold: protecting people's health and protecting the economy. As part of its efforts to address the latter, the Government of Ontario announced several changes aimed at modernizing the province's capital markets sector. These changes, largely focused on the structure of the Ontario Securities Commission (the OSC), seek to advance the recommendations made by the Taskforce in January 2021. Osler previously reported on the Taskforce's final report (the Final Report), providing our perspectives on its 74 wide-ranging recommendations.
In considering the Final Report, the 2021 Budget announced the following changes and developments:
- Expansion of the OSC's mandate: Consistent with Recommendation #2 of the Final Report, the Government of Ontario is moving forward with legislative amendments to expand the OSC's mandate to include fostering capital formation and competition in the markets. As discussed in our consultation letter dated September 7, 2020, while we are supportive of the addition of fostering capital formation as part of the OSC's mandate, there is a risk that the expansion to include competition may create overlapping, duplicative and potentially inconsistent regulation with the existing Competition Act framework.
- Separation of the OSC Chair and Chief Executive Officer: As outlined in Recommendation #3 of the Final Report, the Government of Ontario is taking steps to formally separate the OSC Chair and Chief Executive Officer into two distinct roles. This recommendation was largely driven by the Taskforce's consultations, where stakeholders advised that the OSC's current governance structure impedes its role as a modern and globally competitive capital markets regulator. It is unclear at this stage whether the respective roles and responsibilities of the Chair and Chief Executive Officer will differ from those recommended in the Final Report.
- Separation of the regulatory and adjudicative responsibilities of the OSC: To advance Recommendation #4 of the Final Report, the Government of Ontario announced its plan to separate the currently combined regulatory and adjudicative functions of the OSC. While supportive of this amendment, we are hopeful that the Government of Ontario will carefully examine important governance questions in the implementation process, including the role of the anticipated adjudicative Board and its relationship to the Minister of Finance and OSC Staff.
- Creation of a new Capital Markets Act: As discussed in our previous post, the first - and arguably most sweeping - recommendation in the Taskforce's Final Report is to replace the Ontario Securities Act with the Capital Markets Act sponsored by the Cooperative Capital Markets Regulatory System (the CCMR). In carrying out this recommendation, the Government of Ontario announced its plans to publish a draft Capital Markets Act for stakeholder consultation in the coming months. We anticipate that, if ultimately accepted, this new legislation will act as the vehicle to implement the remainder of the Taskforce's recommendations contained in the Final Report. It is expected that the Ontario draft will be largely based on the draft Capital Markets Act, a copy of which is currently posted on the CCMR's website.
- Review of the OSC's internal regulatory consultation process: Finally, the Government of Ontario noted that the OSC is currently conducting an analysis of its regulatory consultation process on the Taskforce's recommendations that fall within the purview of its rules. The budget signals that changes, consultations and reforms will be forthcoming over the coming year. In addition, as part of this review, the 2021 Budget advises that the OSC will begin policy work to further regulatory consultation with a specific focus on environmental, social and governance disclosures. This furthers Recommendation #41 of the Final Report, which mandates disclosure of material ESG information for all public issuers.
As previously noted, Osler commented on the preliminary draft of the Taskforce's recommendations, supporting many of them, and raising some questions about others. In particular, we welcome the governance changes aimed at transforming the OSC into a capital markets regulatory authority, with a separate expert tribunal and a regulatory framework best able to meet demands of investors and capital raisers in a quickly evolving economy. We also hope that the transition to the Capital Markets Act will facilitate greater collaboration and coordination across the CSA.
The move to the Capital Markets Act, along with several other changes signaled in the 2021 Budget, will require significant input from all stakeholders on many issues as the OSC and the Government of Ontario seek to address some of the complications and challenges arising from the Taskforce's recommendations. This includes, for example, the need to "map" authorities residing in the current legislation to the new positions contemplated in the proposed legislation. Consultation is particularly critical in light of the anticipated separation of the Chief Executive Officer, the Chair and the tribunal. Osler looks forward to engaging in the consultation process on these various issues.
The 2021 Budget represents a step forward in implementing the recommendations in the Final Report. The Budget describes these reforms as "an overdue modernization of Ontario's capital markets that will lead to future economic growth and job creation". We will continue to monitor whether and how these changes advance the Taskforce's goals and how the reform initiative develops with respect to the remaining recommendations.
1. Lawrence Ritchie was a member of the Capital Markets Modernization Taskforce advisory group. The views expressed in this article do not necessarily reflect those of any other members of that advisory group.
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