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Monday, July 13, 2020

Read online or download the full update here.


On July 9, 2020, the Province of Ontario independent Capital Markets Modernization Taskforce (the “Taskforce”) delivered 47 “high impact” policy proposals (the “Proposals”) in the Capital Markets Modernization Taskforce Consultation Report (the “Report”). The Taskforce is seeking feedback on the Proposals by September 7, 2020 with a view to implementing many of the Proposals by year-end. The Ford government announced the Taskforce review last Fall noting the 17-year absence since a similar review had been undertaken (i.e., the 2003 Crawford Committee Report). The Report notes the speed at which the Taskforce has worked relative to past similar reviews in seeking to implement the recommendations only one year from the striking of the Taskforce.

The Proposals fall into six buckets:

  1. Improving Regulatory Structure
  2. Regulation as a Competitive Advantage
  3. Ensuring a Level Playing Field
  4. Proxy System, Corporate Governance and Mergers and Acquisitions
  5. Fostering Innovation
  6. Modernizing Enforcement

Improving Regulatory Structure

The Proposals contemplate an expansion of the Ontario Securities Commission’s (OSC) mandate to include capital formation and competition aimed at promoting a shift from its primarily traditional regulatory functions to an expanded mandate that facilitates the imperative of growing the capital markets in Ontario and increasing competition.

The Taskforce recommends a bifurcated model that separates the regulatory and administrative functions of the OSC to align with proper corporate governance practices. This bifurcation aims to ensure that adjudicative processes adhere to an appropriate boundary between rulemaking and decision-making.

Regulation as a Competitive Advantage

The Proposals recommend that the accredited investor prospectus exemption should only require a seasoning period (rather than the current four-month hold period). A seasoning period permits secondary trades so long as the issuer has been a reporting issuer for four months preceding the trade. In addition, the Taskforce suggests an expansion of the scope of the accredited investor exemption to include individuals who complete relevant exams or other proficiency requirements.

There are currently up to six separate database platforms sponsored by Canadian securities regulators which include SEDAR, SEDI and the National Registration Database. A singular central portal (SEDAR+) has been in development since 2016 and attempts to unify and modernize these systems. The Taskforce not only supports the goal of the SEDAR+ project, but also believes that its development should be expedited.

The Proposals recommend the adoption of electronic or digital delivery in relation to documents mandated under securities law requirements. The Taskforce also suggests an “access equals delivery” model for various documents including prospectuses, financial statements, management discussion and analysis (MD&A) and management report of fund performance (MRFP) documents.

Ensuring a Level Playing Field

The Proposals recommend legislative amendments to the Securities Act (Ontario) to extend the provisions of National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations to prohibit registrants from bundling capital markets and commercial lending services.   

The Taskforce supports the OSC’s “Client Focused Reforms” initiatives which require bank-owned dealers that offer independent products in addition to related products to ensure that their shelf development and know-your-product processes, as well as their advisors’ product recommendations, are not biased towards proprietary products. The Proposals recommend that closed product shelves/proprietary-only shelves should not be allowed in the bank-owned distribution channels.

The Proposals recommend that the OSC establish a “retail private equity investment fund proposal” for public input in order to incorporate private equity investing good practices and strengths of the retail investment fund industry.

The Proposals recommend amending securities legislation to require listed companies to set targets and annually provide data in relation to the representation of women, indigenous people, and people of colour on boards and in executive officer positions.

Proxy System, Corporate Governance and Mergers & Acquisitions

As expected from the composition of the Taskforce and their expertise in corporate governance and the proxy system, over a quarter of the Proposals relate to changes to these areas. The Proposals also reflect an understanding of the difficulties reporting issuers face when attempting to deal with activist shareholder campaigns due to the lack of transparency in shareholder ownership and voting in Canada.

We briefly summarize the key changes to the proxy system and corporate governance as recommended by the Taskforce:

  • A securities regulatory framework for proxy advisory firms;
  • Decreasing the early warning threshold from 10% to 5%;
  • Adopting a regime that would require institutional investors above a certain dollar threshold to disclose their holdings in securities of Canadian reporting issuers on a quarterly basis;
  • Empowering the OSC to provide its informal views to issuers seeking to exclude shareholder proposals through a no-action letter;
  • Mandating disclosure of material environmental, social and governance (ESG) information which is compliant with either the Sustainability Accounting Standards Board or the Taskforce on Climate-Related Financial Disclosures recommendations;
  • Recommending the use of “universal proxy ballots” – a single ballot that lists the director nominees of each side of a dispute, thereby allowing a shareholder to vote for a combination of nominees;
  • Codifying the best practises described in Multilateral CSA Staff Notice 61-302 Staff Review and Commentary on Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”) so that minority shareholders have greater confidence in the role of the independent committee when an issuer is engaged in transactions regulated under MI 61-101;
  • Codifying the best practices found in CSA Staff Notice 54-305 Meeting Vote Reconciliation Protocols which aims to minimize the risk of over-voting; and
  • Allowing issuers access to the list of all beneficial owners in order to enable reporting issuers to know more about the true beneficial owners of their securities and allow easier solicitation of voting instructions.

The Taskforce also recommends that the OSC be granted new powers to enhance its public interest power. This would result in the OSC having powers to rescind a transaction, require a person to dispose of securities acquired in connection with a mergers and acquisitions (M&A) transaction or a proxy solicitation, and prohibit a person from exercising voting rights attached to a security.

Fostering Innovation

The Province has already begun initiating the creation of an Ontario Regulatory Sandbox which would allow fintech firms to test innovative products and business models with a light regulatory touch. The Proposals suggest this could be rolled out nationally.

The Taskforce recommends that capital market participants provide information in a form so that data sharing arrangements can be encouraged. The Taskforce believes that greater accessibility to data would assist businesses in providing new long-term solutions to support innovation.

The Report also proposes modernizing the rules so that early-stage financing can be undertaken by angel groups to assist with capital formation. This includes proposing changes to current registration requirements thereby enabling angel groups to work with their “accredited investor” members to encourage investments in early stage issuers.  

Modernizing Enforcement

The Taskforce proposes the separation of the adjudicative and regulatory functions of the OSC while giving the OSC additional tools to collect monetary sanctions, including more effective powers to freeze, seize or otherwise preserve property.

The Proposals recommend automatically reciprocating sanction orders which would effectively make orders from contested hearings and settlements of other Canadian capital market regulators apply in Ontario as if they were made by the OSC, without a separate OSC order.

In order to combat “short and distort” and “pump and dump” schemes and other abusive practices, the Taskforce recommends creating a new and specific prohibition on making misleading and untrue statements about public companies.

In order to adjust for inflation and the scale of Ontario business, the Taskforce proposes increasing the maximum administrative penalty to $5 million.

The Taskforce also recommends strengthening investigative tools and having production orders that align with tools available to quasi-criminal and administrative investigators while also establishing greater statutory rights for persons or companies directly affected by an OSC investigation or examination.


The Report is an “easy read”, coming in at only 40 pages in length. For the most part, the recommendations lie in areas where provincial support will ensure that they can be implemented without the delay typical in finding common ground with other provinces. However, some of the recommendations require consideration of their larger ramifications before they can safely be implemented. For this reason, industry comment is vital to ensure that long-standing investor protection, such as the “closed system”, are not compromised without the appropriate safeguards.

The Report also does not dwell on the implementation of such Proposals being subject to agreement with other provincial governments. This practical aspect of rulemaking has historically bedevilled the implementation of a national securities regulatory agency, thereby inhibiting prior initiatives by the OSC in the attempt to address regulatory burden.

Ultimately, the Report reflects the attempt of the Province of Ontario “going it alone” in modernizing its legislation. Time will tell if this is a successful gambit.

If you have any questions with respect to this legal update, please contact Ronald Schwass (, Jeff Arnold ( or any other member of our Corporate Finance & Securities practice group.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.