Capital Markets Modernization Taskforce recommendations
Part 4: enforcement

The Capital Markets Modernization Taskforce was established in February 2020 and mandated to make recommendations to modernize Ontario’s capital markets regulation. An initial report was published in July 2020 for consultation and received significant feedback. A product of input from over 110 stakeholders, the taskforce released its final report on January 22, 2021.

In part 4 of this series, we cover recommendations to the securities law enforcement regime. These recommendations are designed to enhance investor protection and better position the OSC to take action against offenders.

Modernizing enforcement and investor protection mechanisms

The taskforce makes a number of recommendations to modernize its enforcement regime, including:

• Prohibit untrue or misleading statements about public companies: Creating a specific prohibition on making misleading or untrue statements about public companies to address “short and distort” or “pump and dump” schemes. 
• Capital markets production orders: The taskforce recommends that provincial court judges be given the power to issue production orders to firms and individuals not under investigation but who have possession or control of relevant information or data. Those subject to a production order must gather or prepare documents, records and/or electronic data to deliver to an authorized enforcement officer.
• Permit broader types of service and searches of private residences: These recommendations would permit the service of summonses, including by electronic delivery, delivery to a place of business and using courier or registered mail. The taskforce recommends allowing searches of private residences during daylight hours.
• Enable the prosecution of those who facilitate contraventions of Ontario securities law: The taskforce recommends a statutory amendment aligned with the language in the proposed draft legislation under CCMR and recent amendments to the Securities Act (British Columbia). These include prohibitions on aiding, abetting, counselling or conspiring to contravene securities law.
• Prohibit front-running: Although front-running is addressed in IIROC’s UMIR, the taskforce recommends a broader prohibition against front-running to capture the misuse of information by individuals other than IIROC dealers. 
• Develop a court-supervised framework for returning disgorged funds to harmed investors: The taskforce recommends that disgorged amounts be required to be distributed to investors in a court-supervised process. 
• Automatic and streamlined reciprocal orders: The taskforce recommends automatic reciprocation for sanction orders, cease-trade orders and settlements from other Canadian securities regulators and a streamlined reciprocation process for orders made by other relevant regulatory bodies including courts, foreign regulators, stock exchanges and SROs.

Granting enhanced powers to the OSC 

The taskforce recommends a number of enhancements to ensure the OSC is able to enforce securities laws, including: 

• providing the OSC with enhanced powers to freeze and deal with assets in serious cases;
• increasing administrative penalties from $1 million to $5 million and fines for quasi-criminal offences from $5 million to $10 million; 
• permitting the OSC to develop a dispute resolution framework and designate OBSI or another dispute resolution service with binding decision making authority;  
• permitting OSC to register a lien on property owned by persons subject to a disgorgement order; 
• allowing tolling agreements to enable the OSC permitting extended limitations periods; 
• empowering  the OSC to obtain orders to block or remove websites and social media sites; 
• codifying OSC requirements relating to data delivery standards; and
• limiting access to drivers’ licences and licence plates for failure to pay amounts ordered by the OSC or a court. 

Greater rights for persons or companies affected by an OSC investigation

The taskforce recommends enhancing the rights of those subject to OSC investigation or examination and ensuring proportionality by: 

• publishing OSC guidance documents, developed in consultation with stakeholders, to facilitate cooperation and efficient investigations and set out best practices for the production of documents;
• incorporating additional confidentiality exceptions to permit disclosure of an OSC investigation, examination and summons to OSFI and other regulators, as well as an expanded list of counsel; and
• adopting a statutory amendment clarifying that the OSC may not require the production of privileged information. 

In Part 5 of this series we will discuss the taskforce’s recommendations to modernize how financial firms, capital markets intermediaries and other market participants operate. 

The taskforce’s final report can be accessed here: https://www.ontario.ca/document/capital-markets-modernization-taskforce-final-report-january-2021