CSA Responds to Ontario Capital Markets Modernization Taskforce Report: NCFA – The present system is simply not good enough

Last month, the Capital Markets Modernization Taskforce in Ontario, Canada, issued its final report as to how to improve capital formation and affiliated economic growth and prosperity. The Taskforce’s goal was to “address the issues of tomorrow’s capital markets with bold and innovative recommendations that will make Ontario one of the most attractive capital market destinations globally.”

The document encompassed meetings with multiple stakeholders and feedback from more than 130 stakeholders. In brief, the feedback indicated that “the time for change is now.”

While Ontario is not all of Canada it is the most active province in the financial services sector. Anything that Ontario pursues is of interest to the rest of the country. The objective is to “amplify growth and competitiveness in Ontario’s capital markets” in a time when private markets are growing in importance and public markets have dimmed a bit.

In all, the Taskforce put together 70 different recommendations. The entire report is available below. Competition and innovation is key to succes – including online capital formation and other forms of Fintech. To quote the Taskforce:

“… financial technology (Fintech) emerged as competition to traditional and incumbent financial services. For example, crowdfunding platforms supplanted some traditional financial intermediaries by allowing peer-to-peer money exchange with minimal advice to investors. Robo-advisors facilitated a new, electronic medium for easy access to diversified portfolio services. Cryptocurrency has the potential to disrupt the intermediary role of traditional banks. However, similar to other Fintech, cryptocurrency is largely unregulated and does not provide the same quality of investor protection as other investments. Such new emerging trends will need to be incorporated into regulatory frameworks, potentially initially through regulatory sandboxes and eventually through formal regulation.”

Ontario Capital Markets Authority?

While regulation may be needed it must be flexible enough to empower innovation and not stifle it explained the report. “A more optimal balance between innovation and regulation is necessary for Ontario’s capital markets to succeed in the future.” The authors advocate dramatic change that would impact Ontario’s current capital markets legislation. The recommendations include altering the mission of the Ontario Securities Commission (OSC) to include a mandate of fostering capital formation and competition – somewhat similar to what the regulators must do in the UK. Currently, the OSC’s mission is more aligned to those in the SEC of investor protection and pursuing fair and efficient markets.

Interestingly, the Taskforce recommends a similar approach as the SEC’s Office of the Advocate for Small Business Capital Formation and its Strategic Hub for Innovation and Financial Technology – two fairly new entities. The OSC Innovation Office should “place a primary strategic focus on facilitating economic growth and innovation, including fostering and testing new and innovative methods to improve transparency in financial product intermediation.”

There is plenty more in the document including recommendations on investor protection and enforcement as well as Regtech and Open Banking efforts.

This past week, the Canadian Securities Administration (CSA) issued a formal response to the report. The CSA represents each provincial securities regulator. The group, with the exception of the OSC, commended the work completed by the Taskforce and said it “believe(s) it will be very useful to bolster our collective reflection on how to advance the Canadian securities regulatory regime.” But while lauding the work, the CSA criticized any attempt to implement changes outside of CSA mechanisms as this would “risk creating inter-jurisdictional friction and adding regulatory burden on market participants across Canada.”  The CSA pointed to the absence of a passporting regime between the provinces

“… we urge the Ontario Finance Minister to act in the best interest of all Canadian market participants and adopt the passport rule,” said the CSA.

The CSA also pointed to an “imbalance” in regards to focusing on vibrant and efficient markets without “commensurate attention” to investor protection initiatives.

To quote the CSA:

“In conclusion, we are fully supportive of cooperative efforts to modernize and streamline the regulation of the Canadian capital markets while delivering robust investor protection through the CSA. To achieve these goals, Ontario should join the passport system and the Taskforce’s recommendations that have policy implications across Canada should be integrated into the CSA’s robust and well-established process for the benefit of all Canadian market participants.”

Crowdfund Insider reached out to the National Crowdfunding and Fintech Association (NCFA) in Canada for feedback on the report. The NCFA contributed a comment to the Taskforce back in late 2020. Craig Asano, founder and long-time Executive Director of the NCFA said:

“The NCFA strongly believes that open finance will bring more competition and innovation, including intellectual property, to financial services and products. It will increase competitor offerings and give consumers more choice and control over their data and financial ecosystem.  However, without the full support of the incoming OSC chair and cooperation among all CSA members for a harmonized and streamlined regulatory culture, Canada risks losing (even) its fast follower status as other global jurisdictions welcome a brave new world.”

Robin Ford, NCFA Advisor on Governance and Regulation, added that the NCFA is firmly in support of a competitive objective:

“… this CSA announcement is otherwise to be welcomed,” said Ford. “As NCFA has advocated, moving to a passport system for all of Canada along with a more sophisticated, inclusive, and transparent regulatory decision process would be a significant step in the right direction. All the Canadian regulators need to work together to drive forward the sorts of improvements recommended by the Taskforce much more quickly, whether through a single cooperative regulator or not, to better support businesses, capital markets, and the wider economy. The present system is simply not good enough.”

While it appears that many stakeholders agree on the need for change there are some differences and not everyone embraced the far-reaching recommendations.

A write-up in the Financial Post slammed the Taskforce’s document as “not the market fix Canada needs” describing the report as “falling short.” The comment criticized two “trendy” recommendations on ESG reporting and diversity targets.

What should be clear is that change is needed, as the report outlined, and it is clear that public markets have been in decline and private markets are shouldering greater relevance in funding risk-taking entrepreneurs and innovation. Canadian provinces do not just compete with each other – they compete with the world and capital can move to more opportunistic jurisdictions. Perhaps a federal approach to securities issuance? Ford’s mention of a “single cooperative regulator” rings true.


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