Keynote speech OSC Dialogue Conference

Canada November 2020



The following is an abridged version of a keynote speech given by Walied Soliman, Canadian Chair of Norton Rose Fulbright Canada LLP and Chair of the Capital Markets Modernization Taskforce, at the OSC Dialogue Conference on November 4, 2020.

Whenever I speak about the capital markets, I like to reflect on the incredible privilege we have of being practitioners and stakeholders in this area. In just over 100 years, Ontario has developed what is widely regarded as one of the most sophisticated capital markets regulatory frameworks in the world. Ontario was five years ahead of the federal government in the United States in regulating the capital markets in an organized manner.

We were ahead. We cannot fall behind.

It was with this backdrop that Premier Doug Ford and Minister Rod Phillips had the vision to form the Capital Markets Modernization Taskforce, reporting to the Minister of Finance, to conduct a broad review of the state of our capital markets in Ontario and determine what we can do to modernize the regulatory framework and ensure that we continue to be global leaders.

That vision was focused on ensuring that we are a safe and secure capital market for people saving for their retirement and equally a market that efficiently marries capital with opportunity. This latter objective is critical: it is how we create new head offices in Ontario, how we ensure that our capital markets contribute to wealth creation and, most importantly, how we create new jobs in this province.

As stakeholders we cannot forget this imperative. Capital markets regulation is not some end in itself. There is a critical social good, a critical main street public policy objective, to the advancement of capital markets regulation, and that is the economic prosperity of our province.

For almost nine months now, Taskforce members – Melissa Kennedy, Wes Hall, Cindy Tripp, Rupert Duchesne and I – have done a lot of listening. Over one hundred stakeholder meetings and dozens of internal meetings later, we have learned a lot, including many positive things.

First, our regulators are driven, hard working and intelligent individuals who are truly focused with the resources they have on creating fair and efficient capital markets.

Second, the regulation of wealth management is generally working well. The regulatory framework is relatively efficient, and the Client Focused Reforms will significantly enhance much of what already occurs in practice and provide further confidence to Ontarians saving for retirement.

We have learned that there is strong consensus around many areas of reform, some of which have been discussed for decades. Governance reform is an example. The Taskforce’s final report will contain a definitive recommendation to separate the adjudicative functions of the Ontario Securities Commission from the regulatory and administrative functions. We envisage in short order a capital markets authority with an oversight and governance board, an independent chair and a CEO with executive and regulatory responsibility for the OSC. We envisage a separate adjudicative body of administrative experts.

While we have all witnessed the debate on the approach that should be utilized in a merged Mutual Fund Dealers Association and Investment Industry Regulatory Organization of Canada, there is wide consensus that creating efficiencies between these two securities regulatory organizations is critical.

There are many other areas where wide consensus was found: prohibiting short selling in connection with prospectus offerings and private placements, developing a well-known seasoned issuer model that will be subject to a less burdensome shelf registration process, many of the proxy plumbing and proxy advisory proposals, the expansion of the regulatory sandbox initiative, and many more.

We received well over 130 detailed submissions in response to our consultation report. The views were enthusiastically presented and the consensus on so many of the proposals was emblematic of a stakeholder community ready to move forward.

Some of our proposals, while discussed in parts of the community for many years and advanced by stakeholders during our consultation, made for intriguing dialogue within the community over the summer.

The first proposal in our consultation report was an expansion of the mandate of the OSC to include fostering capital formation and competition in the markets. You heard the former chairs of the OSC discuss this issue this morning. Such an expanded mandate is not novel. Other securities regulators such as the United Kingdom Financial Conduct Authority, the Australian Securities and Investments Commission and the Monetary Authority of Singapore all have capital markets growth and competition mandates, which allow these regulators to reduce systemic barriers to growth, including fees and anti-competitive behaviour.

Capital markets regulation is not an end in itself. Our capital markets regulator is a critical organ in the prosperity of Ontarians. Amplifying a growth and competition mandate to supplement the all critical investor protection imperative was quite easy. I expect that this recommendation will proceed to our final report.

We proposed strengthening the SRO accountability framework through increased OSC oversight. The reasoning here was quite simple: in an already fragmented capital markets regulatory framework, it is critical that public policy makers in Ontario have direct oversight over all regulation of capital markets participants in Ontario. There were many radical ideas on how to effect this. We will be recommending that the Ministry of Finance and the OSC work even more closely with IIROC, the MFDA and whatever eventual organization emerges to ensure that business plans and regulations align with the public policy direction of the day for capital markets in Ontario. We hope that this will lead to an aligned public policy framework where all capital markets regulators in Ontario are rowing in the same direction and that duplication of regulation will be eliminated.

Proper governance, a new mandate, aligned regulators. You would think that would be enough. But stakeholders, realizing the unique opportunity that the Premier and Minister Philips had given the community, asked for much more.

An alarming and recurring theme in the comments we received was the belief that there has been a decline of new issuers, new initial public offerings and new reverse take-overs in Ontario. I cannot emphasize enough how significant a problem this is. We heard many theories on why this is the case: the rise of private capital, the strength of capital markets in other parts of the world, and our regulatory framework. We could spend years disagreeing on the exact reason why this decline has occurred, but the truth is that we do not have the time. If we are not careful, a dearth of new issuers can very quickly turn the OSC into a wealth management regulatory body, with the occasional interesting new issuer.

We cannot allow this to happen. In many respects, I personally measure the success or failure of this Taskforce using simple metrics, one of which is a natural growth of new issuers in the next five to ten years.

We have carefully tackled this issue by making recommendations reducing the regulatory burden on junior issuers, creating new private placement exemptions, and streamlining disclosure requirements (including by introducing semi-annual reporting, moving to an access equals delivery model, and other recommendations).

We heard from numerous stakeholders that in order to incubate the next Canadian issuer success story, we need to increase the number of independent intermediaries whose focus is on marrying capital with junior opportunities. We heard that the number of active independent dealers has fallen – largely, in the view of many stakeholders, due to a business model where independent dealers were losing out to bank-owned dealers with commercial lending capabilities. We will be making recommendations in our final report designed to spur the growth and establishment of more independent dealers. We view this as a critical component to growing the number of issuers in our province. We have, however, listened carefully to bank-owned dealers in Ontario, and we look forward to adjusting the framework we have proposed to ensure that enhancing the incubation market does not result in unintended consequences to Canadian bank-owned dealers who operate in an extremely competitive global environment.

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 OSC’s Client Focused Reforms are going to have a significant impact on the contents of the retail shelf. We heard time and again from reputable name brand registrants on the difficulties they face accessing the shelves of the most important wealth distribution channels in Canada. This is simply wrong and cannot continue. We have been working hard on refining our recommendations on shelf access and are looking forward to presenting a recommendation that will deliver on more competition while ensuring that the very careful fiduciary framework put in place by our larger distributors is not compromised.

Speaking of measurements of the Taskforce’s success, let me add this one: growth in the number of active independent dealers and growth in the number of creative registrants in this province over the coming five to ten years is critical. When I started practising securities law just under twenty years ago, it was not uncommon for a young managing director and a few friends to leave a larger dealer to establish a new investment bank or registrant. There were two elements that made such an undertaking possible.

First, setting up a new investment bank or registrant was not expensive from a regulatory perspective. In the past, the legal fees associated with setting up an exempt market dealer were less than $10,000 and a full Investment Dealers Association dealer less than $150,000. Today, set-up costs would be several multiples of those amounts, putting the regulatory cost out of reach of a skilled young person absent investors or a wealthy family.

Second, and more importantly, whether setting up a dealer or a registrant, there was a clear path in the market for a business plan to succeed. Today, there are structural barriers to the business plans of new entrants. When combined with high entry costs, these structural barriers have a significant impact. Our final recommendations will be addressing these issues, and it is our hope that we will look back at these changes as being catalysts for an energized intermediary and registrant business and that this will lead to a re-energized incubation market and greater choice on the shelves for retail investors.

The consultation report also contains twelve proposals on the role of enforcement, which principally originated with the defense bar and the enforcement branch of the OSC, and we will be considering additional proposals. Let me start off by saying this unequivocally: we have full confidence in the enforcement team at the OSC. Their job is not easy. If they are more delicate, they are accused of allowing a loose regime. If they are tougher, they are accused of overreach. We are continuing to carefully refine our recommendations. The net result will include enhanced powers for the enforcement branch that are focused on investor protection. The recommendations will also include enhanced certainty and clarity for the defense bar on issues that they have long sought such clarity.

Throughout our review and analysis, every single recommendation we made was viewed through the lens of investor protection. While growth and competition imperatives were critical, investor protection was primary and guiding.

In addition to many others, we have recommended that amounts collected by the OSC pursuant to disgorgement orders be deposited into court for distribution to harmed investors.

We have also recommended enhanced powers for the Ombudsman for Banking Services and Investments. We received many comments on this and we are mindful of the different views expressed therein. Our final report will contain recommendations for an enhanced, binding dispute resolution process with appropriate guardrails for both investors and dealers.

Confidence in our markets is critical. Investors need to feel safe. Issuers need efficiency. I would therefore be remiss if I did not address efforts around a national Canadian securities regulator. For more than 45 years, the vast majority of studies have come out in favour of establishing a national regulator, beginning with the Porter Report in 1964 and the Kimber Report in 1965. Every Taskforce member is in favour of a national regulator. Clearly, this must be the goal. Our national reality poses challenges to achieving that goal. Our federation is complex both geographically and culturally, with varying capital markets objectives across the country. The political will needed to accomplish the goal of a national regulator does not currently exist. One of the largest issuers in this country recommended to the Taskforce that we abandon the national securities regulator project. While we disagree, we understand what would drive such a strong position: in pursuing and being the strongest advocate for a national regulator, there are many who believe that Ontario has fallen behind. Our final report will not contain any recommendation that will detract from the work of the Cooperative Capital Markets Regulatory System. In fact, we are excited at the prospect of additional recommendations – drawing on the extraordinary work of the people who have been working on the CCMR – that we feel will set the stage much better for a future national regulator.

However, it is time for Ontario to lead. Our recommendations will be designed to put Ontario in a position to do just that.

What comes next? We continue to actively engage with stakeholders and are working diligently with the Ministry of Finance and the OSC on developing our final recommendations. We anticipate delivering to the Minister a final report sometime in December. From there, the Minister of Finance and the government will review our final report and work to advance the recommendations that they choose to accept as government policy.

The opportunity here is unique. The government of Ontario has signalled its seriousness about working with the Taskforce and the community on making changes to our capital markets regulatory framework that will have a positive generational impact.

As a community, it is incumbent upon us to embrace this opportunity.

So, what do we ask of stakeholders?

First, we must understand that change is coming. We truly appreciate the community’s engagement and ask that you continue to send us your ideas, comments and criticisms. We want to hear from everyone. We have made ourselves available and we will continue to do so.

We need every capital markets stakeholder to adopt an Ontario capital markets first approach to your comments and engagement. We want to know how our recommendations will impact your business, but more importantly we want to hear from you as experts on the impact our recommendations will have on the public policy objectives of the broader capital markets.

We want to see the SRO’s work together to help the regulatory community come up with the right solutions for our capital markets. No agendas. The output of a more efficient SRO framework is clear. Concurrent with our efforts and those of the Canadian Securities Administrators, we encourage stakeholders to make joint recommendations.

The stakeholder community needs to engage on diversity. We are very proud of our colleague Wes Hall who founded the BlackNorth Initiative, which has resulted in over 380 organizations signing its BlackNorth Pledge. However, after a decade of discussing gender diversity, we have made few gains. Our report will include recommendations on increasing diversity in our issuer and regulatory community. We want to hear from you; we want to get this right, and we hope that the necessary change will come organically.

We have an exciting opportunity ahead of us. We look forward to presenting our final report. In 1928, Ontario was ahead of its time in capital markets regulation. We intend on delivering a report that will once again put us at the front of the pack.


Chair, Norton Rose Fulbright Canada LLP