Earlier this week, the Ontario Securities Commission (OSC) issued its long-awaited Report on the work of the Burden Reduction Task Force (the Report), in which it outlined the work undertaken by the OSC and the Task Force, aimed at minimizing regulatory burdens and enhancing competitiveness (the Burden Reduction Initiative). The initiative is a significant component of the Government’s announced agenda to support more efficient capital markets and to “reduce regulatory burden for businesses resulting in greater investment in Ontario’s capital markets”. The Report summarizes a variety of initiatives that have been completed, that have been published for comment, and that are under consideration or for which the OSC has committed to studying in the future. We have highlighted some of the main recommendations of the Report in a recent Osler Update (see “OSC issues anticipated Report on the Burden Reduction Task Force”).
We have previously written a series of posts on this blog relating to the initiative (see “OSC Burden Reduction Initiative – OSC roundtables,” “OSC Burden Reduction Initiative – Rules-based versus principle-based regulation,” “OSC Burden Reduction Initiative – Revisiting the 2003 Regulatory Burden Task Force,” and “OSC Burden Reduction Initiative – Focusing on ‘Principles’ for more responsive and effective regulation”), which examined whether, among other things, the Burden Reduction Initiative, launched by the OSC in January 2019, might result in a less rule-based and more principle-based approach to regulation from the OSC to increase efficiency, flexibility and innovation. As we’ve previously outlined, a rules-based approach lays out detailed prescriptions for regulatory compliance, whereas a principle-based approach to regulation is built on core underlying values, such as protecting investors, fostering fair and efficient capital markets, and reducing systemic risk. While these values are of course still part of a rules-based approach, a principle-based approach puts them front and centre.
In the Report, the OSC confirmed that its recommendations were guided by the principle of “proportionate regulation,” meant to ensure investor protection and confidence in the capital markets, while still being balanced, tailored, flexible and responsive to different businesses and the evolving marketplace. To the OSC, regulation is proportionate where: costs imposed on stakeholders are commensurate with the benefits; it avoids a “one-size fits all” approach taking into account how regulations affect entities or different sizes; it recognizes that there are multiple ways to achieve objectives and includes stakeholder input; and it is frequently updated to support innovation.
With respect to the divide between a rule-based versus principle-based approach to regulation, in the Report, the OSC has acknowledged that a rules-based approach to regulation is often too prescriptive. When making rules going forward, the OSC has committed to conducting a deeper and more comprehensive regulatory impact analysis. In particular, the OSC has also committed to engage in targeted consultations with market participants to better understand their concerns about finding the right balance between prescriptive and principles-based rules. Nevertheless, the OSC confirmed that its ideal regulatory approach “involves combining and balancing principles-based rules, prescriptive rules and guidance”.
The Report reiterates the OSC’s intention to continue to walk a line between both prescriptive rule-based regulation, and a more principle-based approach, with the ideal regulatory approach in their eyes being a combination of the two. Although rules and principle-based approaches are often positioned as competing, all regulatory systems rely on both, and the OSC has confirmed that its ideal regulatory approach is no different. Nevertheless, the OSC has also welcomed continued dialogue from market participants on how best to refine this balance. It may be that the pendulum swings in future – but for now, the regulator will be guided by a balanced approach which takes the best of both worlds. Finally, we also note that the OSC has indicated that it intends to engage in targeted consultations regarding the application of staff guidance, because it is important in their eyes that everyone can recognize the difference between guidance and rules, and that guidance be appropriately used in compliance and regulatory reviews.
This site will continue to monitor and report on developments in this area, which no doubt will impact upon how business and capital raising is conducted in Ontario.