New rules urged for investment crimes
Ontario task force offers ideas to improve protections against misleading practices and scams
An Ontario government task force is proposing new measures to help the province’s securities regulator catch and convict white-collar criminals stealing from ordinary investors.
After a 10-month review, the Capital Markets Modernization Task Force released more than 70 recommendations last week to transform the Ontario Securities Commission (OSC) and enhance investor protections — an issue often bemoaned by critics of Canada’s securities laws and enforcement.
It’s difficult for Ontarian investors who fall victim to financial misconduct — such as misleading sales practices, investment scams or bad investment advice — to seek redress, said Walied Soliman, chair of Bay Street law firm Norton Rose Fulbright Canada LLP.
The task force says harmed investors now often have difficulty navigating a complex and fragmented regulator framework, leading to lost confidence in the system’s integrity and fairness of the capital markets.
Recent annual enforcement reports from the Canadian Securities Administrators show that, across the country, enforcement has decreased in the last couple of years. In the 2018-19 fiscal year, securities regulators initiated proceedings in 63 alleged securities violations — a 40 per cent drop from the year prior.
“There is a perception that Ontario’s capital markets regulatory regime is not stringent enough with respect to whitecollar crime and that bad actors in comparable jurisdictions face enforcement action earlier, which can hurt investor confidence,” the report reads.
“That’s why we’ve recommended tougher enforcement on individuals involved in capital market violations — like taking money from a family and losing it (in) an inappropriate way,” says Soliman, who led the Capital Markets Modernization Task Force.
Among dozens of recommendations, the task force recommends: establishing a binding dispute-resolution process for investors who lose less than $500,000 due to alleged inappropriate action by a broker; giving security regulators a wider mandate to go after individuals making misrepresentations to drive down a stock price; and stripping individuals of their driver’s licence if
they don’t pay penalties.
“We have to give our regulators the tools to ensure our capital markets are safe for investors,” Soliman said.
The task force — the first comprehensive review of Ontario’s securities laws since 2003, Soliman said — was launched in 2019 by Ontario’s then-finance minister Rod Phillips.
The recommendations vary in size and scope, offering incentives to boost capital formation and proposing new rules for companies to disclose their annual environmental impact. Suggestions also include splitting the agency’s adjudicative and regulatory enforcement roles by separating its CEO and chairman positions, and creating an adjudicative body within the OSC to rule on alleged Securities Act violations.
“We have to give our regulators the tools to ensure our capital markets are safe for investors.”
WALIED SOLIMAN
NORTON ROSE FULBRIGHT CANADA LLP
The task force also recommends expanding the agency’s mandate to include growing the capital markets and augmenting its regulatory function. It even recommends changing the agency name to the Ontario Capital Markets Authority — a change aimed at reflecting its broader mandate.
Edward Waitzer, a lawyer and former chair of the OSC, says the proposals are a reflection of past attempts to tighten securities regulations in Ontario.
“A lot of these proposals have been around for literally decades,” Waitzer told the Star. “It’s a very impressive list with lots of recommendations, but it’s largely an anthology of proposals that have been made over the past several years that haven’t been acted on by either the commission or the government or both.”
Waitzer says securities regulations often lack political currency, meaning that while proposals are often discussed by governing bodies, rarely are they acted on. “So I worry that, while it’s a good anthology, I’m not sure how much of it is actionable,” he said.
The proposals now go to the Ministry of Finance, where minister Peter Bethlenfalvy will decide which to accept.
“It’ll be a new day in the capital markets of Ontario if these recommendations are implemented,” Soliman said. “And we hope it’ll be a new day that’s safer for investors.”