A year ago, the Ontario Securities Commission (OSC) and the Ontario Ministry of Finance created a Burden Reduction Task Force (Task Force) to identify ways to reduce regulatory burdens in Ontario capital markets. After consulting stakeholders and analyzing submissions made to the Task Force’s January 2019 request for comment, the OSC published a progress report (Report) on this initiative on November 19. We encourage clients to skim at least Appendix 1 of the Report, since it outlines more than one hundred decisions and recommendations that will shape Ontario’s securities regulatory framework and the OSC’s administrative processes in the next few years. Below, we highlight some initiatives that we think will be of particular interest to our clients.
- Help for small firms: According to the Report, one third of the nearly 1,000 registered firms for whom the OSC is the principal regulator are small, with only one or two registered individuals. The OSC and the Ontario Government want to make it easier for these and other small and medium-sized enterprises (SMEs) to navigate the regulatory process when they start, fund and grow their businesses. Initiatives that are likely to be of particular interest to SMEs include:
- Expanded and improved service standards, especially for compliance reviews (including streamlined books and records requests, reassessment of the criteria for significant versus non-significant deficiencies and communication of those criteria);
- The potential for small registrants to share a chief compliance officer (CCO) with one or more other, unaffiliated registrants (Part-Time CCO Model); and
- Confidential prospectus reviews prior to initial public offerings (IPOs).
- Innovative businesses and start-ups are also a priority. The OSC will work with CSA members to harmonize the crowdfunding rules and solicit feedback on increasing the issuer and investor limits under those rules. For new business models, the OSC also intends to take a more flexible approach to registration, resales in the secondary market, who can invest (e.g. individuals with specialized knowledge), and other regulatory requirements. As well, assessments of individuals applying to CCOs of fintech firms will take into account their broader business experience and the alignment of that experience with the firm’s business model.
Although a Canada-wide, flexible approach to CCO registration (including the Part-Time CCO Model) will take time to implement, the OSC has stated that it’s ready to explore these options now for Ontario-only registrants.
- Other Decisions Affecting the Exempt Market: Market participants hoping for big changes in the exempt market regime might be a little disappointed. Aside from the initiatives mentioned above:
- CSA members are considering whether to extend the filing deadline for reports of exempt distribution (REDs), which would give issuers who make discrete offerings more time to file reports and enable issuers in continuous distribution to include more transactions in a single report. This would reduce the number of filings (and the total amount of fees in jurisdictions like Ontario that have a fixed, per-filing fee). In addition, the proposed SEDAR+ initiative will eliminate the need to file REDs in multiple jurisdictions.
- The OSC is also looking at whether to reduce the filing fee for REDs.
- The OSC does not plan to act on certain other requests, such as eliminating the risk acknowledgment form (RAF) for accredited investors, allowing the $150,000 minimum amount exemption to be used to raise funds from individuals, or permitting the solicitation of private placement investors through unrestricted websites or social media.
- Over-the-counter (OTC) derivatives market participants might think that the OSC buried the lede by waiting until page 77 of the Report to indicate that it’s assessing whether the existing dealer and adviser registration framework can be used for OTC derivatives instead of imposing additional registration categories. Expect an update on this analysis in the spring of 2020.
- Risk Assessment Questionnaire (RAQ): Before the next RAQ cycle, the OSC will determine whether the burden of completing the questionnaire can be reduced by removing certain information received through other filings and pre-populating some RAQ fields (e.g. with information provided in earlier years). However, the RAQ will continue to be a biennial, not triennial, occurrence.
- Registration of Client Relationship Managers (CRMs): The OSC acknowledged that there is a mismatch between the current experience requirements for advising representatives (ARs) and associate advising representatives (AARs) and the role of ARs/AARs who serve more as CRMs than portfolio managers (PMs). It is working on a possible solution so that CRMs can be registered as ARs or AARs subject to terms and conditions that focus on the role that they perform at the firm.
- Investment funds: The Report’s list of actions and recommendations overlaps to some extent with the recent CSA consultation paper on reducing regulatory burdens for investment funds, which we highlighted in our September bulletin. Some new items featured in the Report include:
- Considering potential options for adapting the shelf prospectus system to investment funds (including publication of a consultation paper by the end of 2021, if the concept is viable);
- Streamlining the investment fund continuous disclosure regime;
- Developing and proposing changes to the proficiency regime for alternative mutual funds; and
- Streamlining and coordinating administrative procedures affecting investment funds.
- Initiatives Affecting All Market Participants include the following:
- The OSC will engage in consultations to address concerns that staff are sometimes applying guidance as rules.
- On November 6, the Ontario Government announced that it intends to amend the Securities Act so that the OSC can issue orders exempting class of persons, trades or instruments from Ontario securities law (Blanket Orders).
- As previously announced, the OSC plans to redevelop its website, prioritizing the posting of updated, consolidated rules and better access to staff contact information.
Now What? For each proposed action, the Report specifies the work to be done, a start time (e.g. Fall 2019 or January 2020), an estimated time to completion (e.g. 6, 12, 24 or 36 months from the start), and the current status (e.g. planning, in progress). A few of the proposed actions involve completion of a change in the regulatory framework or an administrative process. However, a lot of them describe earlier phases of longer-term initiatives (e.g. consider an improvement, publish a consultation paper). Some of them also require coordination with other CSA members or self-regulatory organizations (SROs).