Task force recommends changes to OSC

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Task force recommends changes to OSC

January 25th 2021

Task force recommends sweeping changes to OSC

The proposals would radically alter securities regulation in Ontario

A government-appointed task force is recommending sweeping changes to the framework and content of securities regulation in Ontario.

The provincial government released the final report of its Capital Markets Modernization Taskforce on Friday. The report sets out a series of recommendations that, if adopted, would radically alter securities regulation in Ontario.

Among other things, the task force called for a restructuring of the Ontario Securities Commission (OSC), including spinning out its adjudicative function, separating the chair and CEO roles, expanding its mandate to include promoting growth and even changing its name — to the Ontario Capital Markets Authority.

Alongside the proposed restructuring of the commission, the task force recommended replacing the existing securities legislation with the Capital Markets Act, which was developed to facilitate the implementation of the cooperative capital markets regulator (CCMR) — a proposed federal-provincial body that would represent a step toward national regulation.

The task force recommended that the OSC and the Financial Services Regulatory Authority of Ontario (FSRA) explore ways to consolidate and share back-office resources and harmonize the regulation of similar products.

The report also proposed overhauling self-regulation by creating a single self-regulatory organization for all dealers and advisors, starting with a single SRO for investment dealers and fund dealers, which would be expanded to cover exempt market dealers, portfolio managers and other registered firms.

The new SRO structure would be under stricter oversight by the OSC that would give the commission veto power over rule proposals and the initial appointments of the SRO’s top executives.

Additionally, the report included a series of recommendations aimed at enhancing enforcement, including the introduction of an array of new investigative tools for the OSC, measures to enhance access to compensation for harmed investors and the designation of a dispute resolution body with binding decision-making power.

The report also included recommendations designed to foster growth in the number of independent dealers, with a view to increasing access to capital for small companies and a series of provisions that aim to facilitate access to independent investment products.

The task force proposed a wide range of other measures, including recommendations for enhancing corporate diversity, bolstering access to capital for issuers and streamlining regulatory requirements.

It remains to be seen whether the government will act on the task force’s recommendations. Previous task forces have made similarly transformative recommendations, but governments haven’t followed through with the actual changes.

In this case, the report comes in the midst of a global pandemic that has preoccupied the provincial government for the better part of the past year. It was also released following the resignation of Rod Phillips, Ontario’s former finance minister who commissioned the report.

Changes since 2019: The National Amendments are substantially similar to the proposed amendments published by the CSA for comment in March 2019 (2019 Proposal). But there have been a few changes. For example, Form 45-106F18 Supplemental Disclosure for Syndicated Mortgages will require disclosure of the potential subordination of the syndicated mortgage, clarify the calculation of the loan-to-value ratio, and include additional examples of risk factors.

Some jurisdictions have proposed further changes to their exemptions:

• Qualified syndicated mortgages: Ontario and New Brunswick have published for comment prospectus and registration exemptions for “qualified syndicated mortgages” (QSMs), and we expect Nova Scotia to introduce a similar pair of exemptions. Alberta and Québec have proposed a prospectus-only exemption for trades in QSMs.

• Distributions of non-qualified syndicated mortgage investments (NQSMIs) to permitted investors: Ontario and New Brunswick also have proposed prospectus and registration exemptions for distributions of NQSMIs to permitted clients (i.e. institutional and high net worth investors). Alberta has proposed a prospectus-only exemption for trades in NQSMIs to permitted clients, while Québec is asking for feedback on whether such an exemption should be introduced.

• Reports of exempt distribution: Ontario and New Brunswick will not require a Form 45-106F1 Report of Exemption Distribution to be filed for distributions of QSMs under their new prospectus exemptions or for distributions of NQSMIs sold to permitted clients.

Who will regulate what in Ontario beginning in March 2021? FSRA currently regulates all syndicated mortgage investments in Ontario. When the new regime comes into effect, FSRA will continue to supervise transactions involving qualified, syndicated mortgage investments and the mortgage brokers and administrators involved in such transactions. Oversight of NQSMIs will be split between FSRA and the OSC, depending on the status of the investor/lender and the type of transaction. In particular, FSRA will supervise:

• NQSMI transactions with permitted clients;

• NQSMI transactions with permitted and non-permitted clients before March 1, 2021 (Legacy NQSMIs); and

• Administrators of NQSMIs.

Mortgage brokerages that deal in mortgages and syndicated mortgages only with permitted clients will not have to register with the OSC and the distributions of these products to permitted clients will be exempt from the prospectus requirement. There will be dual oversight however, in some circumstances. For example, FSRA will have oversight over mortgage brokers dealing in NQSMIs when they act on behalf of the borrower who is not a permitted client, with the OSC having oversight over the trades with respect to that investor/lender.

The proposed FSRA Guidance describes FSRA’s forward-looking, risk-based approach to supervision of the firms and transactions over which it will have authority and outlines the data it plans to collect from firms to inform its risk assessments.

Task force recommends changes to OSC

January 25th 2021

Task force recommends sweeping changes to OSC

The proposals would radically alter securities regulation in Ontario

A government-appointed task force is recommending sweeping changes to the framework and content of securities regulation in Ontario.

The provincial government released the final report of its Capital Markets Modernization Taskforce on Friday. The report sets out a series of recommendations that, if adopted, would radically alter securities regulation in Ontario.

Among other things, the task force called for a restructuring of the Ontario Securities Commission (OSC), including spinning out its adjudicative function, separating the chair and CEO roles, expanding its mandate to include promoting growth and even changing its name — to the Ontario Capital Markets Authority.

Alongside the proposed restructuring of the commission, the task force recommended replacing the existing securities legislation with the Capital Markets Act, which was developed to facilitate the implementation of the cooperative capital markets regulator (CCMR) — a proposed federal-provincial body that would represent a step toward national regulation.

The task force recommended that the OSC and the Financial Services Regulatory Authority of Ontario (FSRA) explore ways to consolidate and share back-office resources and harmonize the regulation of similar products.

The report also proposed overhauling self-regulation by creating a single self-regulatory organization for all dealers and advisors, starting with a single SRO for investment dealers and fund dealers, which would be expanded to cover exempt market dealers, portfolio managers and other registered firms.

The new SRO structure would be under stricter oversight by the OSC that would give the commission veto power over rule proposals and the initial appointments of the SRO’s top executives.

Additionally, the report included a series of recommendations aimed at enhancing enforcement, including the introduction of an array of new investigative tools for the OSC, measures to enhance access to compensation for harmed investors and the designation of a dispute resolution body with binding decision-making power.

The report also included recommendations designed to foster growth in the number of independent dealers, with a view to increasing access to capital for small companies and a series of provisions that aim to facilitate access to independent investment products.

The task force proposed a wide range of other measures, including recommendations for enhancing corporate diversity, bolstering access to capital for issuers and streamlining regulatory requirements.

It remains to be seen whether the government will act on the task force’s recommendations. Previous task forces have made similarly transformative recommendations, but governments haven’t followed through with the actual changes.

In this case, the report comes in the midst of a global pandemic that has preoccupied the provincial government for the better part of the past year. It was also released following the resignation of Rod Phillips, Ontario’s former finance minister who commissioned the report.

Changes since 2019: The National Amendments are substantially similar to the proposed amendments published by the CSA for comment in March 2019 (2019 Proposal). But there have been a few changes. For example, Form 45-106F18 Supplemental Disclosure for Syndicated Mortgages will require disclosure of the potential subordination of the syndicated mortgage, clarify the calculation of the loan-to-value ratio, and include additional examples of risk factors.

Some jurisdictions have proposed further changes to their exemptions:

• Qualified syndicated mortgages: Ontario and New Brunswick have published for comment prospectus and registration exemptions for “qualified syndicated mortgages” (QSMs), and we expect Nova Scotia to introduce a similar pair of exemptions. Alberta and Québec have proposed a prospectus-only exemption for trades in QSMs.

• Distributions of non-qualified syndicated mortgage investments (NQSMIs) to permitted investors: Ontario and New Brunswick also have proposed prospectus and registration exemptions for distributions of NQSMIs to permitted clients (i.e. institutional and high net worth investors). Alberta has proposed a prospectus-only exemption for trades in NQSMIs to permitted clients, while Québec is asking for feedback on whether such an exemption should be introduced.

• Reports of exempt distribution: Ontario and New Brunswick will not require a Form 45-106F1 Report of Exemption Distribution to be filed for distributions of QSMs under their new prospectus exemptions or for distributions of NQSMIs sold to permitted clients.

Who will regulate what in Ontario beginning in March 2021? FSRA currently regulates all syndicated mortgage investments in Ontario. When the new regime comes into effect, FSRA will continue to supervise transactions involving qualified, syndicated mortgage investments and the mortgage brokers and administrators involved in such transactions. Oversight of NQSMIs will be split between FSRA and the OSC, depending on the status of the investor/lender and the type of transaction. In particular, FSRA will supervise:

• NQSMI transactions with permitted clients;

• NQSMI transactions with permitted and non-permitted clients before March 1, 2021 (Legacy NQSMIs); and

• Administrators of NQSMIs.

Mortgage brokerages that deal in mortgages and syndicated mortgages only with permitted clients will not have to register with the OSC and the distributions of these products to permitted clients will be exempt from the prospectus requirement. There will be dual oversight however, in some circumstances. For example, FSRA will have oversight over mortgage brokers dealing in NQSMIs when they act on behalf of the borrower who is not a permitted client, with the OSC having oversight over the trades with respect to that investor/lender.

The proposed FSRA Guidance describes FSRA’s forward-looking, risk-based approach to supervision of the firms and transactions over which it will have authority and outlines the data it plans to collect from firms to inform its risk assessments.

Task force recommends changes to OSC

January 25th 2021

Task force recommends sweeping changes to OSC

The proposals would radically alter securities regulation in Ontario

A government-appointed task force is recommending sweeping changes to the framework and content of securities regulation in Ontario.

The provincial government released the final report of its Capital Markets Modernization Taskforce on Friday. The report sets out a series of recommendations that, if adopted, would radically alter securities regulation in Ontario.

Among other things, the task force called for a restructuring of the Ontario Securities Commission (OSC), including spinning out its adjudicative function, separating the chair and CEO roles, expanding its mandate to include promoting growth and even changing its name — to the Ontario Capital Markets Authority.

Alongside the proposed restructuring of the commission, the task force recommended replacing the existing securities legislation with the Capital Markets Act, which was developed to facilitate the implementation of the cooperative capital markets regulator (CCMR) — a proposed federal-provincial body that would represent a step toward national regulation.

The task force recommended that the OSC and the Financial Services Regulatory Authority of Ontario (FSRA) explore ways to consolidate and share back-office resources and harmonize the regulation of similar products.

The report also proposed overhauling self-regulation by creating a single self-regulatory organization for all dealers and advisors, starting with a single SRO for investment dealers and fund dealers, which would be expanded to cover exempt market dealers, portfolio managers and other registered firms.

The new SRO structure would be under stricter oversight by the OSC that would give the commission veto power over rule proposals and the initial appointments of the SRO’s top executives.

Additionally, the report included a series of recommendations aimed at enhancing enforcement, including the introduction of an array of new investigative tools for the OSC, measures to enhance access to compensation for harmed investors and the designation of a dispute resolution body with binding decision-making power.

The report also included recommendations designed to foster growth in the number of independent dealers, with a view to increasing access to capital for small companies and a series of provisions that aim to facilitate access to independent investment products.

The task force proposed a wide range of other measures, including recommendations for enhancing corporate diversity, bolstering access to capital for issuers and streamlining regulatory requirements.

It remains to be seen whether the government will act on the task force’s recommendations. Previous task forces have made similarly transformative recommendations, but governments haven’t followed through with the actual changes.

In this case, the report comes in the midst of a global pandemic that has preoccupied the provincial government for the better part of the past year. It was also released following the resignation of Rod Phillips, Ontario’s former finance minister who commissioned the report.

Changes since 2019: The National Amendments are substantially similar to the proposed amendments published by the CSA for comment in March 2019 (2019 Proposal). But there have been a few changes. For example, Form 45-106F18 Supplemental Disclosure for Syndicated Mortgages will require disclosure of the potential subordination of the syndicated mortgage, clarify the calculation of the loan-to-value ratio, and include additional examples of risk factors.

Some jurisdictions have proposed further changes to their exemptions:

• Qualified syndicated mortgages: Ontario and New Brunswick have published for comment prospectus and registration exemptions for “qualified syndicated mortgages” (QSMs), and we expect Nova Scotia to introduce a similar pair of exemptions. Alberta and Québec have proposed a prospectus-only exemption for trades in QSMs.

• Distributions of non-qualified syndicated mortgage investments (NQSMIs) to permitted investors: Ontario and New Brunswick also have proposed prospectus and registration exemptions for distributions of NQSMIs to permitted clients (i.e. institutional and high net worth investors). Alberta has proposed a prospectus-only exemption for trades in NQSMIs to permitted clients, while Québec is asking for feedback on whether such an exemption should be introduced.

• Reports of exempt distribution: Ontario and New Brunswick will not require a Form 45-106F1 Report of Exemption Distribution to be filed for distributions of QSMs under their new prospectus exemptions or for distributions of NQSMIs sold to permitted clients.

Who will regulate what in Ontario beginning in March 2021? FSRA currently regulates all syndicated mortgage investments in Ontario. When the new regime comes into effect, FSRA will continue to supervise transactions involving qualified, syndicated mortgage investments and the mortgage brokers and administrators involved in such transactions. Oversight of NQSMIs will be split between FSRA and the OSC, depending on the status of the investor/lender and the type of transaction. In particular, FSRA will supervise:

• NQSMI transactions with permitted clients;

• NQSMI transactions with permitted and non-permitted clients before March 1, 2021 (Legacy NQSMIs); and

• Administrators of NQSMIs.

Mortgage brokerages that deal in mortgages and syndicated mortgages only with permitted clients will not have to register with the OSC and the distributions of these products to permitted clients will be exempt from the prospectus requirement. There will be dual oversight however, in some circumstances. For example, FSRA will have oversight over mortgage brokers dealing in NQSMIs when they act on behalf of the borrower who is not a permitted client, with the OSC having oversight over the trades with respect to that investor/lender.

The proposed FSRA Guidance describes FSRA’s forward-looking, risk-based approach to supervision of the firms and transactions over which it will have authority and outlines the data it plans to collect from firms to inform its risk assessments.