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Catherine McCall is executive director for the Canadian Coalition for Good Governance. Edward Waitzer is a lawyer and former chair of the Ontario Securities Commission. He has advised and made representations on behalf of Broadridge Financial Solutions on the Ontario Capital Markets Modernization Taskforce’s recommendations. The views expressed are his own.

The final recommendations of the Ontario Capital Markets Modernization Taskforce, released in January, are admirable both for their breadth and ambition.

As the first significant review of Ontario’s securities regulation in almost 20 years, the task force’s challenge was to propose regulatory reforms responsive to transformational events that have occurred, including technological innovation, the 2008 financial crisis and other systemic risks (such as climate change, the pandemic and growing social and economic inequality). The goal is to ensure regulation that promotes the effective mobilization and allocation of savings to facilitate prosperity for current and future generations.

The 74 task force recommendations have much to offer investors. Many can be implemented immediately.

Strengthening shareholder democracy through mandatory majority voting and say on pay are important measures, as is requiring disclosure of the environmental, social and governance matters that institutional investors should incorporate into their investment and voting decisions to accurately reflect risk-adjusted returns. Investors should also be pleased by recommendations to require enhanced staff diversity disclosure, universal proxies and a focus on reducing the overvoting of proxies, which disconnects equity ownership from voting rights.

So, where did the task force fall short?

It failed to undertake the level of analysis that should be expected (and is required of the Ontario Securities Commission, or OSC) before policy recommendations can be acted on. That would have included a discussion of costs, benefits and alternatives considered.

With respect to several recommendations, much of this work has already been undertaken by the Canadian Securities Administrators but is not acknowledged or addressed by the task force. It also failed to reflect the role and contribution of investors in our capital markets. This superficiality does a disservice to the task force’s efforts and, if used as the basis for policy making, could undermine public confidence in the integrity of our regulatory framework and markets.

For example, the task force recommends that as of Sept. 1, 2022, reporting issuers be able to obtain the identities and securities holdings of all beneficial owners. A policy discussion that has been under way for decades is addressed in less than a page, with a radical recommendation justified by an unsupported statement that the current system hinders the ability of issuers to engage in dialogue with investors and raises (unspecified) concerns about the overall transparency of the proxy voting process.

In Canada as well as the United States, a growing majority of retail and institutional investors do not support such transparency and choose to withhold such consent when they have the option, but this is not acknowledged. Nor is there any effort to address policy concerns about personal privacy and the use of personal data or the obligations of intermediaries to provide guidance to clients and safeguard their information.

Likewise, there is no analysis to underpin the task force’s recommendation for a proposed “access equals delivery” model of disseminating corporate disclosure to investors. Without some form of notification, access (that is, posting on the internet) will in practice amount to no delivery at all, resulting in a significant diminution of investor education, engagement and protection. The task force failed to consider other opportunities for cost savings and efficiencies that might better enhance, rather than compromise, the quality of investor communications through the adoption of existing digital solutions.

The task force revisits the regulation of proxy advisers without acknowledging the extensive work recently undertaken by the Canadian Securities Administrators (or by the U.S. Securities and Exchange Commission). Their analysis is based on unsubstantiated assumptions of influence and error. The recommendations disregard the essential services proxy advisers provide to institutional investors.

Of immediate concern are the recommendations, which the government proposes to enact through its pending budget bill, to add “facilitating capital formation” and “competition” to the OSC’s statutory mandate and to adopt a new statute, based on one that has been under development for the past decade in connection with the yet-to-be-realized national securities regulator.

There is little discussion of why the existing statute or the OSC’s dual mandate of fostering fair and efficient capital markets and protecting investors are no longer fit for the purpose or how changing the mandate might skew the commission’s perspective and independence. Absent analysis, the suggestion that changing the mandate will “encourage economic growth” is an exercise in political wishful thinking. Nor is it clear what the task force thinks Ontario will achieve by going it alone on a new statute, which goes against the co-ordinated effort with other provinces that has lasted for years.

Institutional investors increasingly play a stewardship role in ensuring a sustainable economy, with the power to affect economic and social change for the better while safeguarding Ontarians’ savings. Capital markets regulation should advance and not compromise these goals. Efforts to effect reform without undertaking the required analysis will diminish the OSC’s status and effectiveness and undermine public confidence in Canadian capital markets.

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