Ontario urged to hold off on revised Capital Markets Act

The fact that a 100-day consultation period that overlaps with a busy holiday period is too short to digest a 200-page draft proposal is just one reason why policymakers in Ontario shouldn’t push through with its revised Capital Markets Act (CMA), according to one financial services industry veteran.

In a comment letter published by the CD Howe Institute, Harvey Naglie, whose 40-year career in financial services spans both the public and private sectors, said the draft legislation published in October was “a rewarmed version of a decade-old proposal” that would waste a “once-in-a-generation opportunity for intelligent reform.”

He noted that in the past few years, Ontario has already introduced profound changes to its approach to securities legislation by focusing on regulatory burden reduction, setting up an Office of Economic Growth and Innovation within the Ontario Securities Commission (OSC), and adding capital formation to the financial market outcomes that OSC must help encourage.

“It would be only prudent to let these fundamental changes, with all their new opportunities and challenges for market participants work out,” said Naglie, who most recently was a Senior Policy Advisor with the Ontario Ministry of Finance. “Prudence also would suggest allowing time to evaluate the implications of the new mandate and structure, and only then consider introducing new securities legislation.”

And while the new CMA is aimed at facilitating regulatory flexibility, he said the fact that the OSC is part of the umbrella group of the Canadian Securities Administrators (CSA) will still severely limit it. The proposed CMA, which was initially developed in 2014 as part of an effort to integrate the individual securities legislation of all provinces and create a single national regulator, also falls short because if focuses primarily on sales practice regulation and disclosure-focused investor protection.

Naglie argued that the act is not designed to recognize modern-day realities such as the blurring lines between financial services and products, increased regulatory emphasis on advice delivery over transactions, the growing embrace of fee-based compensation rather than commission-based models, and the increasing recognition of ESG in financial risk-return calculations.

“The proposed CMA was not purpose-built for these new opportunities and challenges and enacting it at this time would represent a lost opportunity,” Naglie said.

Rather than forging ahead with its new legislation, he suggested that Ontario make amendments to the current Securities Act. More strategically, he said legislators should consider what types of securities legislation will be in the province’s best interest in the longer term, with careful thought devoted to whether it’s best to work more or less collaboratively with securities regulators in other provinces.

More collaboration, he said, would require the province to join the Passport securities reform framework, subject to a commitment from other jurisdictions to take on a wholesale renewal to streamline decision-making and update regulations. If it decides on less collaboration, Ontario should pursue a more integrated legislative framework where all financial services and products that are regulated within the province are treated consistently by one regulator combining the OSC and the Financial Services Regulatory Authority of Ontario (FSRA).

“This approach would allow Ontario to go it alone and enact a 21st century statute appropriate for a jurisdiction that aspires to be a world class financial centre with fair, efficient and competitive capital markets,” Naglie said.