Some proposals to change the way Ontario investigates and punishes capital market offences could make it difficult for the province’s securities regulator to work with other jurisdictions across the country, the organization that represents provincial securities commissions says.
The changes, suggested by a provincial government task force, would slow down Ontario Securities Commission hearings and potentially undermine protections for investors, the Canadian Securities Administrators said on Thursday.
The proposals are in a report published in July by the task force, which was established to review Ontario’s securities regime. The CSA agreed with many of the report’s 47 proposals, but took issue with nine, particularly six that recommended changes to the Ontario Securities Commission’s investigative and enforcement powers.
The CSA’s response came in a letter sent to the task force several days before the end of the public comment period on the report. The high concentration of financial services companies in Ontario makes the province Canada’s most important jurisdiction for securities law. With issues around competition, the cost of regulation and the ease of raising capital all on the table, the outcome of the review will affect market participants and regulators across the country.
CSA chair Louis Morisset said in an interview that, for his organization, the key is ensuring enforcement rules in Ontario don’t diverge too much from those of other jurisdictions. The letter said the CSA drafted its response without input from the OSC to maintain an outside perspective.
“Many enforcement proceedings … involve work across provinces, with enforcement personnel in various commissions, because often what happened crossed borders. Ultimately, by altering enforcement practices and procedures in Ontario, it could clearly undermine and impair enforcement processes elsewhere,” Mr. Morisset said.
In particular, the CSA took issue with several proposals that favour defendants. These include establishing a defendant’s right to apply to an adjudicator for clarification on an issue, and making it harder for OSC staff to seek a contempt of court order when defendants are not co-operating.
The CSA argued that these changes, combined with several other proposals, could mire the OSC in slow, court-like proceedings. Of note, the CSA also opposed increasing the maximum administrative penalties from $1-million to $5-million.
“Would that ultimately enter the field of what should be imposed under a quasi-criminal sanction?” Mr. Morisset asked. “We’re foreseeing potential issues that could be raised down the road where some defendant could argue that this is too severe and should be handled quasi-criminally.”
The CSA made no comment on task force proposals that would expand the power of the OSC to compel the production of evidence and collect monetary sanctions. It also said it agreed with many of the proposals on issues such as streamlining disclosure and expanding the ways issuers can raise capital.
It said in the letter that 13 of the recommendations mirror CSA priorities for policy changes, while another 19 are things the CSA “may consider including as part of its future policy work agenda.”
The letter pointed to several proposals designed to make it easier for companies to raise money – such as removing the four-month hold period for accredited investors or making it easier for issuers to “test the waters” for investor interest – that are in line with an alternative offering system the CSA is developing.
“This report has a lot of congruence with what we at the CSA have announced,” Mr. Morisset said. He noted that the CSA plans to look into the question of expanding who qualifies as an accredited investor, and is working on a “well-seasoned issuer” rule, similar to what is in place in the United States, to make it easier for established companies to raise money.
On the key question of competition, the CSA remained tight-lipped. The task force suggested that regulators do more to crack down on the practice of “tied selling,” which involves banks bundling capital market and commercial lending services. On this point, the CSA simply noted that tied selling is already illegal, although it added that it “may consider in the future additional nuances” on the issue.
The task force report did not address two things, Mr. Morisset said: the fact that Ontario is the only province that does not use a passport system that automatically reciprocates orders and regulatory filings across Canadian jurisdictions, and the length of Ontario’s consultation period for regulatory changes. The CSA recommends shortening the consultation period to 60 days from 90 days.
The task force is collecting feedback on its 47 recommendations until Sept. 7, after which a final report will be sent to Ontario’s Ministry of Finance.
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Mark Rendell