Proposed reforms to enforcement practices at the Ontario Securities Commission (OSC) could impede regulatory enforcement and harm investor protection, the Canadian Securities Administrators (CSA) is warning.
In a submission to the Ontario government’s consultation on capital markets reform, the CSA said recommendations in the task force’s initial report focused on altering enforcement practices at the OSC “could ultimately impair CSA enforcement processes and undermine investor protection.”
The CSA’s submission — which was crafted without the OSC’s input — calls on the task force to be cautious when it comes to recommending changes that could narrow the discretion of regulators or push regulatory enforcement processes toward more complex, court-like proceedings. Such a move could create “additional processes that may ultimately decelerate timely enforcement action and undermine both investor protection and investor confidence,” the CSA said.
Alongside its warnings about changes to enforcement practices, the CSA is pushing back against several other recommendations included in the Soliman Report.
For instance, the CSA said measures such as requiring public companies to hold annual “say-on-pay” votes, and introducing requirements for certain institutional investors to disclose their portfolio holdings would add regulatory burden without corresponding benefit.
It also advised against giving the OSC the power to provide views of issuers’ decisions to exclude shareholder proposals, saying that this “[risks] fettering the discretion of the regulator, which runs counter to our respective mandates of protecting the public interest.”
At the same time, the CSA points out what it sees as a couple of missed opportunities in the task force’s work: having the OSC join the CSA’s passport system, and reducing minimum rule-making comment periods from 90 to 60 days, in line with the rest of the CSA.
Ontario has resisted joining the passport system in the hope of ultimately seeing the creation of a national regulator. The CSA argued that it should come on side to enhance regulatory efficiency.
“The adoption of this rule would significantly reduce regulatory burden for Ontario market participants whose principal regulator is located elsewhere in Canada,” it said.
“We are pleased to see that there is a meaningful degree of congruence between the task force proposals and the CSA’s current business plan,” said Louis Morisset, chair of the CSA and president and CEO of the Autorité des marchés financiers (AMF), in a release.
“However, a key opportunity not identified in the task force report is Ontario’s adoption of the passport rule, implemented by all other CSA members more than a decade ago to provide market participants with streamlined access to Canada’s capital markets,” he said.
In other areas, the submission noted that the CSA is already working on ground covered in the Soliman Report, such as addressing concerns about abusive short-selling, considering changes to the accredited investor exemption, and increasing investor access to independent products.
“Within the task force report, 13 of 47 proposals reflect key CSA priorities or mirror pending CSA policy projects,” it said. “Another 19 proposals raise policy topics that have either been addressed in previous policy work or in recently adopted policy changes, or may be considered as part of the CSA’s future policy work.”
The CSA also endorsed certain task force recommendations, such as enabling Ontario to automatically reciprocate enforcement orders from other provinces — a practice that has been adopted in various jurisdictions.
Joining the passport system “would leverage automatic reciprocation benefits even further,” the CSA said, “by reciprocating prospectus, exemptive relief, registration, and some other regulatory decisions.”
The deadline for submissions to the consultation is Sept. 7.