NEXT UP FOR DISRUPTION: THE OSC.

In the world of business and the media, they are grandly called The Disruptors. From the invention of the wheel to the latest AI concept, from Facebook to blockchain to legalized cannabis, the status quo is never safe from their destabilizing ideas. In Ontario, Premier Doug Ford’s new government is emerging as the biggest disrupter of the moment.

First came the Ford attack on cap and trade and carbon pricing, followed by a Constitution-rattling move to reshape the governance of the city of Toronto. Next up for disruption: The Ontario Securities Commission (OSC) and cohort members in the quasi-national Canadian Securities Administrators (CSA). The first warning shot was fired last week when the province’s finance minister, Vic Fedeli, released a statement saying that “our government does not agree” with a move by the securities commission and its CSA counterparts to propose a ban on certain kinds of mutual fund sales commissions and charges.

Fedeli’s news release came at 10 a.m. Thursday after the CSA “published for comment” its proposals to improve “investor protection and market efficiency” by, among other things, prohibiting upfront fees and deferred sales commissions.

The government’s intervention apparently stunned the investment industry and its legal teams. The move, said lawyers at Osler, raises “interesting issues relating to the functioning of the OSC and Canada’s established process for national securities rule making.”

Osler did not explain what the “interesting issues” are, but let’s start with the possibility that Fedeli’s move may be the beginning of a much larger conflict between the Ford government and the OSC. And here’s another possibility: a little disruption within the investment industry’s regulatory hen houses is overdue.

Sales commissions and other aspects of the mutual fund business have been the source of much agitation and theoretical puzzlement for decades. Most of the research uses economic calculations and models to attempt to prove that mutual funds are dubious investment vehicles that depend on costly marketing schemes, reward sales people more than investors and fail to provide solid returns over time. The latest paper, published this month by the U.S. National Bureau of Economic Research, suggests somewhat unhelpfully that “eliminating (mutual fund) marketing substantially improves welfare” as capital shifts toward cheaper funds and competition decreases fees.

In the ideal regulatory world envisioned by activists and theorists, mutual funds would be prohibited from marketing their products, charging sales commissions and becoming too big to manage. That’s the general context for the OSC/CSA regulatory push that Ontario’s finance minister claims to oppose.

But the mutual-fund constraints published last week are just a small part of a largely ignored regulatory bubble that is now floating to the surface of Canada’s securities markets. For the better part of a decade, under generally benign political oversight, Canada’s securities regulators have been busy constructing a massive overhaul of investor-industry relations under the general heading of Client Focused Reforms.

The central document was released last June, described by the CSA as “Proposed Amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations, and to Companion Policy 31-103CP.” In all, the amendments to existing policy documents contain 260 pages of directives, proposals, reforms, regulations, consultations, provisions, harmonizations, streamlining and enhancing of the national investment regime.

These OSC/CSA proposals are in addition to the mutual fund reforms released last week. The coming few months will determine whether the regulators will be able to proceed with their grand plans. The mutual fund proposals are open for comment until Dec. 13. The comment period for the 260-page reform package released last June, which has an impact on a much larger range of institutions and issues, is Oct. 19.

As comments arrive, the full scale of the disagreements among industry players and theorists will emerge for the review of the new Ontario government. On the big national reform, fewer than half a dozen comments have been lodged so far and they hint at the major ideological and practical divisions. There’s the activist group that welcomes more intervention and there’s the retired investment adviser who’s glad he sold his firm. “I am happy to no longer be struggling to find a profit among the ever-increasing demands of regulators.”

There will be a lot more of this before the October 19 and December 13th comment deadlines as investor advocates and Canada’s major institutions and associations weigh in with their comments on proposals that are aggressively interventionist and mind-bogglingly nitpicky in their scope.

Still another regulatory plan developed under Ontario’s previous Liberal government is already well advanced. Executives are currently being recruited for a new Financial Services Regulatory Authority of Ontario, which will eventually assume new powers over insurance companies, credit unions, loan and trust companies, mortgage brokers and pension administrators.

Exactly how much interest the Ford government will have in financial and securities regulation remains to be seen. Provincial governments have tended to let regulators have their way in an industry that lacks the policy appeal of taxation, carbon pricing, municipal governance, crime and health care.

The ideological umbrella for the overall OSC/CSA Client Focused Reforms is the belief that regulation is needed to overcome basic market failures. Individual investors are too dumb and/or incompetent to make their own decisions. Market forces do not work to produce the consumer benefits. The market needs to be made “efficient” through regulation.

Even though the CSA regulatory initiatives have been in the works for a decade, not enough attention has been paid to verifying the dubious theory that markets have failed — or to testing its companion theory: that more and more regulation will increase the financial health of savers and investors.