Bay Street is about to get its first peek at proposals to modernize Ontario’s capital markets.
The province’s Capital Markets Modernization Taskforce is poised to publish its preliminary report in the coming weeks, according to people familiar with the matter. (The Globe and Mail is not identifying the sources because they are not authorized to speak publicly about the process.)
Task force members, some of the business community’s sharpest minds, will offer their two cents worth on updating Ontario’s aging securities legislation. But the most important advice those savants can provide is urging the Ford government to jump-start plans for the pan-Canadian securities regulator.
The long-promised Capital Markets Regulatory Authority is the single most effective way to ensure our capital markets regain their competitive edge, to improve investor protection and mitigate systemic risks. Task force members would be doing the entire country a favour if they give the CMRA a big thumbs-up and urge legislators to set an expeditious timeline for its launch.
Our elected officials are skilled at dawdling. With task force members putting the final touches on their initial report, a public consultation planned for this summer and final recommendations expected to land this fall, this is a now or never moment to get the CMRA off the ground.
The CMRA will initially include Ontario, British Columbia, Saskatchewan, New Brunswick, Nova Scotia, Prince Edward Island and Yukon. Getting it operational is critical to persuading holdouts, including Alberta and Quebec, to drop their spurious objections and join the group.
Let’s face it, the Canadian Securities Administrators, an umbrella group for securities regulators from the 10 provinces and three territories, is past its prime. Not only is the CSA system fragmented, it takes too long to change regulations or respond to innovations such as robo-advisers, cryptocurrencies and peer-to-peer lending.
And chew on this: Just think of how much better prepared we would’ve been for the COVID-19 crisis had the CMRA already been up and running. Companies would’ve received faster regulatory relief – including deadline extensions for securities filings and guidance on holding annual general meetings during the pandemic – because a pan-Canadian regulator could’ve made decisions that apply across jurisdictions.
Our policy makers would’ve had more precise information earlier in the crisis. Remember when credit markets seized up and the Bank of Canada rode to the rescue? Imagine if policy makers were able to avail themselves of more robust bond market data and tailor their asset-buying programs.
All that would be possible with the CMRA because its mandate includes systemic risk management, currently a blind spot in Canada. Not only would the CMRA pro-actively monitor various market risks, it would also serve as a repository for national data collection.
Investors, meanwhile, would’ve benefited from more uniform investor protection during this crisis. Think of all the coronavirus investment scams and how much easier it would’ve been for regulators and police to crack down on fraudsters if enforcement was co-ordinated across jurisdictions.
A prime example is the apparent “pump and dump” stock promotion mail campaign involving Crestview Exploration Inc., a B.C.-registered gold company. As The Globe’s Niall McGee and Greg McArthur reported this month, several securities regulators put out individual warnings in each of their own jurisdictions. It was a pan-Canadian problem that merited a national response.
What’s needed is a one-stop shop for prosecuting securities violations, including those of a criminal nature. It’s essential the CMRA fills that role because Canada has a reputation for being lax on white-collar crime. As Mr. McArthur reported last week, provincial and territorial securities commissions launched 40 per cent fewer enforcement cases last year.
“The government, through the Ministry of Finance, remains engaged in the CCMR [Co-operative Capital Markets Regulatory] initiative,” Emily Hogeveen, a spokeswoman for Finance Minister Rod Phillips, wrote in an e-mailed statement. “The effectiveness of Ontario’s capital markets are a priority.”
Good intentions are not enough. As the Ontario Securities Commission revealed Thursday in its 2020-21 statement of priorities, there’s reason to worry about waning support for a pan-Canadian regulator given some stakeholder feedback.
“Comments related to the planned establishment of the Co-operative Capital Markets Regulatory System (CCMR) were mixed with some supporting OSC work on this initiative offset by others suggesting not to divert resources to this effort,” the OSC said.
The Ontario government needs to kick plans for the CMRA into high gear. The original memorandum of agreement that laid the foundation for the CMRA dates back to April, 2015. Five years later, there’s still lots of work to be done.
Participating provinces and territories still need to enact the Capital Markets Act to harmonize regulations. The federal government needs to pass the Capital Markets Stability Act to address systemic risk management. And the Capital Market Regulatory Authority Act must be passed by all the participating jurisdictions, including Ottawa.
Canada is the only industrialized country without a national securities regulator. How can investors have confidence in our capital markets if we continue to lag the rest of the developed world?
Having 13 sets of rules within Canada drives up compliance costs for companies, complicates capital raising and ultimately depresses investors’ return on equity.
As governments plot an economic recovery from this crisis, they should be preparing for the next one. Let’s hope that Ontario’s task force members give our legislators a swift kick in the pants.
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