Since 1995, Ontario’s Securities Act has contained a provision that requires the province to conduct a review of securities legislation every five years. The first five-year review was initiated in 2001 but there has not been another one since. However, numerous regulatory changes warrant scrutiny and the time is ripe for an independent review of the securities regulatory regime in Ontario.
Specifically, the Securities Act states that the province’s Minister of Finance must appoint an advisory committee to review the legislation, regulations and rules relating to matters under the purview of the Ontario Securities Commission (OSC) no later than 48 months after the appointment of the previous committee. The committee must prepare a report of its findings and recommendations, which includes soliciting public comments, and must submit that report to the minister. The minister is then required to table the report in the legislature to the appropriate legislative committee, which will then review the report and publish its own response and recommendations.
Why have a review of securities legislation every five years? According to the 1994 final report of the Ontario task force on securities regulation titled Responsibility and Responsiveness, the statutory provision allows the OSC to present its perspective on the Securities Act and to analyze whether there is a need for legislative reform. It also yields a measure of accountability by allowing the broader legal community to comment on, and contribute to, the formulation of Ontario’s securities law. This process could uncover issues not previously identified by the regulator and ensure that these issues are carefully considered.
The one and only five-year review commenced in 2001 under the thoughtful leadership of the late Purdy Crawford, chair of the advisory committee. The committee initially published an Issues List, identifying 42 issues on which it requested comments. It considered 31 written submissions and then published a draft report. The draft report included several additional issues and led to another 45 comments, which the committee examined prior to finalizing its report in 2003.
The Ontario legislature then released its response to the advisory committee’s report. The response recommended the introduction of a civil liability regime for misrepresentations in secondary market disclosures and enhanced enforcement provisions in the Securities Act. It also contemplated that another review committee would be struck within five years. This thought was captured in the Budget Measures Act of 2004, which states that a new advisory committee should be appointed on or before May 31, 2007.
More than a decade has passed since this date, with no committee having been struck. This means that no external advisory committee has reviewed the Securities Act after the global financial crisis of 2008. But that does not mean that securities regulation has remained constant. On the contrary, the mandate of the OSC has grown to include a third role. The act’s explicit purposes historically focused on protecting investors and fostering fair and efficient capital markets. The new, third purpose states that the OSC should contribute to the stability of the financial system and the reduction of systemic risk. Does the legislation as currently formulated adequately support the third prong of the OSC’s mandate (let alone the first two prongs)? A review of securities legislation in Ontario would be well worthwhile if only to address this issue. The relationship between securities regulation and the reduction of systemic risk is not intuitive.
Other issues that warrant examination include the efficacy of enforcement provisions in the statute and the client-adviser relationship, issues which have both been under regulatory scrutiny for years but which have yet to be adequately addressed. In addition, the next advisory committee should consider whether the three current broad-based priorities of the OSC – including promoting confidence in the capital markets, reducing the regulatory burden and facilitating financial innovation – should indeed be the central focus of regulatory attention as set forth in the OSC’s 2019 statement of priorities. One must ask: What about the initiatives that were in the statement of priorities the year before, such as implementing additional investor protection measures for syndicated mortgage investments and reviewing the efficacy of disclosure requirements vis-à-vis women on boards?
One of the reasons that the province has not struck a second advisory committee likely relates to the continuing project to create a co-operative capital markets regulator, an initiative of certain provinces together with the federal government. In addition, the overarching dynamic of the Canadian Securities Administrators must be taken into account. But this dynamic has not prevented Ontario from undertaking its own initiatives in the past and should not be a barrier to the province’s compliance with existing law in the future.
In short, another five-year review committee should be convened, especially in light of pressing issues on the regulatory agenda.
Anita Anand holds the J.R. Kimber Chair in Investor Protection and Corporate Governance at the University of Toronto.