Walied Soliman is Canadian Chair of Norton Rose Fulbright and Chair of the Capital Markets Modernization Taskforce. This piece is adapted from a speech given this week to 700 Canadian capital-markets regulators and stakeholders at the annual Ontario Securities Commission Dialogue conference.
Ontario’s Capital Markets Modernization Taskforce collected valuable feedback from hundreds of industry stakeholders this year, much of it positive and constructive – but there was also an alarming, recurring theme: a sustained decline in new public companies in Ontario. The significance of this problem cannot be overstated.
There are a number of theories on the cause of this decline, including the rise of private capital, the strength of capital markets in other parts of the world, and our regulatory framework.
Regardless of the reason, capital-markets regulation is not an end in itself. There is a critical social good – a crucial main street public policy objective – to the advancement of capital-markets regulation, and that is job creation and the economic prosperity of our province. Given the times, it has taken on new urgency.
One proposal in our consultation report was to expand the Ontario Securities Commission’s mandate to include fostering capital formation and competition in the markets. Expanding the mandate will be critical to ensuring increased investor protection and the attractiveness of our capital markets.
An expansion of this kind is not novel. Other securities regulators, such as Britain’s Financial Conduct Authority, the Australian Securities and Investments Commission and the Monetary Authority of Singapore, all have capital-markets growth and competition mandates. This allows these regulators to reduce systemic barriers to growth, including fees and anti-competitive behaviour. We must ensure the same here in Ontario.
It will also be critical to reduce the regulatory burden on small public companies, which is why we are proposing, for example, creating new private placement exemptions and substantially streamlining disclosure requirements.
In order to incubate the next Canadian entrepreneurial success story, we are proposing measures to increase the number of independent intermediaries whose focus is on marrying capital with job-creating opportunities for entrepreneurs. It is clear that the number of active independent dealers has fallen. This is largely, in the view of many stakeholders, due to a business model where independent dealers are losing out to bank-owned dealers with commercial lending capabilities.
To combat this, we must spur the growth and establishment of more independent dealers. To be sure, we must ensure that enhancing the incubation market does not come at the expense of unintended consequences to Canadian bank-owned dealers, who operate in an extremely competitive global environment. Striking the right balance will be a crucial component to growing the number of issuers in our province.
In the same vein, we heard from retail investor advocates on the importance of ensuring that wealth-management distribution channels allow easy access to competitive and independent wealth-management products. It is clear that the Canadian Securities Administrators' Client Focused Reforms will have a significant impact on the contents of the shelf of products available to retail investors.
However, registrants repeatedly underscored the difficulties they face in accessing the shelves of the most important wealth-distribution channels in Canada. These difficulties cannot continue. We are currently finetuning proposals that will deliver on more competition while ensuring that the fiduciary framework put in place by our larger distributors is not compromised.
The Taskforce delivered many other recommendations for consultation in the early summer. These include significant changes to the governance of the OSC, better alignment between the OSC, the IIROC and the MFDA, a number of enhanced investor protections, enforcement recommendations and enhanced transparency by proxy advisers.
Our final report will not contain any recommendation that will detract from the work of those advancing a national regulator. In fact, we are excited at the prospect of drawing on the extraordinary work of the national regulatory project that we feel will set the stage for a future national regulator.
Ontario was once ahead of its time in capital-markets regulation and, since the creation of the OSC, we have developed what is widely regarded as one of the most sophisticated capital-markets regulatory frameworks in the world.
Premier Doug Ford and Minister of Finance Rod Phillips have presented the capital markets community with a once-in-a-generation opportunity. Let’s embrace it.