Reform capital markets for growth and prosperity
Last month, the Ontario Ministry of Finance released the final report of its Capital Markets Modernization Task Force. The task force, chaired by Walied Soliman, produced 74 recommendations to modernize capital markets laws and regulations and the Ontario Securities Commission (OSC). I was a member of the expert advisory group that provided assistance to the task force.
Why should capital markets modernization matter to Ontario families? Because the recommendations provide a path to a more globally competitive and robust capital market in Ontario, one that could better support the economic recovery and create long-term opportunities for all Canadians, including more jobs, more entrepreneurs, more head offices and more investment choices in the future.
Although Ontario’s capital markets are working well today, three general problems currently prevent Ontario and Canada from realizing their full potential.
The first problem is misalignment between regulatory policy and the longterm public policy imperative of generating economic growth. At the moment, there is no statutory requirement for the OSC to consider how its rules impact capital formation in Ontario or the province’s competitiveness in the global marketplace. In fact, the OSC is not even required to support the non-partisan public policy goal of successive governments to grow the economy and create jobs.
One consequence of this disconnect has been a proliferation of well-meaning regulations that have become a burden for job creators to navigate. The number of new listings on the TSX Venture Exchange fell from 337 in 2010 to 77 in 2020, with entrepreneurs citing the cost of accessing public markets as a significant reason.
The task force would have the OSC continue to protect investors while pursuing a mandate to foster capital formation and competition in the markets, in part by transforming some of its crucial inner workings. This change will balance out the OSC’S focus and over time usher in a more streamlined, smarter regulatory regime that is more favourable to job creators.
The second general problem is an antiquated set of rules that are burdensome on Ontario families and businesses. Much of the world has become digitized, whether in working, learning, socializing or investing. COVID-19 has supercharged this trend. Research shows that when it comes to their investments, Ontario families want to communicate electronically. The rule book has not caught up to this reality, however. It continues to impose a significant paper burden on both the families that receive it and the businesses required to generate it. Significant resources are tied up producing tons of mail that almost nobody reads, using resources that could be better spent keeping or creating jobs in Ontario communities and improving the digital investor experience.
The task force believes regulation is to blame for this lack of digitization and recommends that the OSC clear roadblocks to moving to a world of digitized capital markets that engage investors in the way they prefer. Costly and unread mail will be replaced with more convenient and better ways for investors to check in on investments online, which will result in strong investor engagement and protection.
The third general problem is unnecessary limits on investor choice. For decades, regulations have exploded in number and complexity to protect investors of all types from themselves. This has given rise to a regime that keeps retail investors, accredited investors and institutional investors alike from participating in a greater variety of investment opportunities.
The task force proposals would clear away intricate and onerous rules and help those who want to invest get their money into our economy. For example, under the task force’s proposals, retail investors could gain access to private-equity investments like early stage businesses, while those who rely strictly on bank-owned products would also be able to choose from a wider set of competitive and innovative investment options to achieve their personal financial goals.
The goal of these proposals is to help Canadian entrepreneurs raise capital more efficiently, thus enabling them to create jobs. They would free families and businesses from an unnecessary and costly paper burden, while both better protecting investors as well as giving them more investment choices. People from all walks of life would have a better opportunity to help grow our economy through participation in our capital markets.