Background
On March 28, 2019, the Ontario Securities Commission (“OSC”) published for comment its 2019-2020 Draft Statement of Priorities. Notable features include a new goal of reducing regulatory burden and significant emphasis on creating a flexible regulatory framework for crypto-assets. From an enforcement perspective, the OSC’s Draft Statement of Priorities suggests a focus on cases that are expected to have a strong regulatory impact, as well as continuing to leverage the OSC’s whistleblower program.
Overview of the OSC’s Proposed Regulatory Goals
The OSC’s four regulatory goals for 2019-2020 are generally consistent with those outlined in the past:
- Promote Confidence in Ontario’s Capital Markets
- Reduce Regulatory Burden
- Facilitate Financial Innovation
- Strengthen the OSC’s Organizational Foundation
The OSC’s draft priorities for 2019-2020 include the following:
- Continue Canadian Securities Administrators (“CSA”) Policy Work on Mutual Funds Embedded Commissions
- Expand Systemic Risk Oversight of Derivatives
- Timely and Impactful Enforcement Actions
- Support Transition to the Capital Markets Regulatory Authority (“CMRA”)
- Engage with the Fintech/Start-Up Sector
- Implement Alternative Funds Regime
The goal of reducing regulatory burdens is a newer addition to the OSC’s slate of priorities and comes on the heels of its Burden Reduction Task Force. The burden-reducing goal is rooted in one of the OSC’s fundamental principles that regulatory costs and restrictions on market participants should be proportionate to the significance of the regulatory objective. As we have previously reported, the OSC in coordination with the Ministry of Finance established a Burden Reduction Task Force in January 2019. The burden-reducing goal is rooted in one of the OSC’s fundamental principles that regulatory costs and restrictions on market participants should be proportionate to the significance of the regulatory objective. The Task Force has undertaken to lessen regulatory burdens and enhance competitiveness for Ontario businesses. This falls in step with Ontario’s plan to cut regulatory red tape and promote business in Ontario, and supports the Government of Ontario’s Open for Business Action Plan.
While the OSC’s goal of engaging with the fintech/start-up sector has also been a priority area in past years, the OSC’s 2019-2020 priorities center around crypto-assets. The OSC proposes to create flexible regulatory frameworks for crypto-asset business models, including initial coin and token offerings, crypto-asset investment funds, corporate finance issuers investing in crypto-assets, digital tokens and/or distributed ledger technology-related businesses, and crypto-asset trading platforms. The OSC seeks to fill the regulatory gap in the crypto-asset space and follows in step with the CSA and IIROC’s recent consultation paper for a proposed regulatory framework for platforms that trade crypto-assets.
Potential Implications
Although it remains to be seen which goals and priority areas the OSC ultimately elects to pursue once the consultation period closes, the Draft Statement of Priorities is nevertheless informative, particularly with respect to enforcement activities. The OSC has indicated that it seeks to focus resources “on cases expected to have a strong regulatory impact and that are aligned with its strategic priorities”. Accordingly, market participants can expect to see an enhanced profile for the OSC Whistleblower Program as well as improved use of data analytics in market conduct cases to strengthen the detection of harmful conduct.
The focus on the Whistle Blower Program is unsurprising as earlier this year the Program announced that three whistleblowers in separate matters received a total of $7.5 million for providing “high quality, timely, specific and credible information, which helped advance enforcement actions resulting in monetary payments to the OSC.”
In keeping with this indication that the OSC seeks to enhance activities that preemptively capture harmful conduct, it is critical for companies to have in place a robust controls system in order to detect potential problems as early as possible. It is also important to have mechanisms in place to protect employees who come forward to report problems internally.
How Stakeholders Can Get Involved
Stakeholders are invited to provide written comments on the OSC’s Draft Statement of Priorities by May 27, 2019. After receiving and considering comments, a final Statement of Priorities is expected to be published in June 2019.
