Ontario Securities Commission (OSC) governance

1. Expand the mandate of the OSC to include fostering capital formation and competition in the markets

The aim of this change is to, institutionally and culturally, supplement the policing function of the primary regulator with a public policy imperative of growing the capital markets in Ontario. This leads to vibrant capital markets, fueled by innovation, competition and diversity. Other securities regulators, such as the U.K. Financial Conduct Authority, Australian Securities and Investments Commission and the Monetary Authority of Singapore, have a capital markets growth and competition mandate, which allows these regulators to reduce systemic barriers to growth, including fees and anti-competitive behaviour.


Given the significant role the OSC plays in relation to the vitality of the capital markets and investments in Ontario’s businesses, the Taskforce proposes incorporating the fostering of capital formation and competitive capital markets to the OSC’s mandate to encourage economic growth. This would lead to the development of a competitive and innovative capital markets regime and would be a timely response to reinvigorate a post-COVID-19 pandemic economy in Ontario.

How would incorporating capital formation and fostering competitive capital markets into the OSC’s mandate help spur economic growth in Ontario? Would such changes impact the OSC’s remaining mandates (i.e. fostering fair and efficient capital markets, protecting investors and reducing systemic risk)?

2. Separate regulatory and adjudicative functions at the OSC

Canadian securities commissions have traditionally been structured as multi-functional administrative agencies, acting jointly as regulator and adjudicator. However, throughout the Taskforce consultations, stakeholders have indicated that the OSC’s current governance structure is an impediment to its role as a modern and globally competitive capital markets regulator. Stakeholders have noted that corporate governance would be strengthened by ensuring that the adjudicative process adheres to the appropriate boundaries between rule-making and adjudicative decision-making by separating these functions. There is a growing consensus among policy-makers and legal experts, including a number of previous expert panels on Ontario’s capital marketsfootnote 1, that a bifurcated model, with the regulatory and administrative functions separated, aligns with proper corporate governance practice.

The recently established Financial Services Regulatory Authority of Ontario (FSRA) has separate Chair and CEO positions and enforcement proceedings are brought to a separate tribunal, the Financial Services Tribunal. In addition, the proposed CCMR structure agreed among the participating jurisdictions contemplates a tribunal as a division of the cooperative regulator, as well as separate Chair and CEO positions.


The Taskforce is proposing to separate the regulatory and adjudicative function of the OSC. This could be achieved through: (1) a separate tribunal, comprised of adjudicators and its own staff, within the current OSC structure, or (2) by creating a new capital markets adjudicative tribunal as a separate entity from the OSC. A tribunal within the existing OSC structure would report to the existing Adjudicative Committee of the OSC Board and continue to maintain a collaborative, yet independent, relationship with OSC regulatory policy staff and allow adjudicators to stay knowledgeable on the most recent regulatory developments.

A new tribunal would be independent from the OSC and report directly to the Minister of Finance with no institutional relationship with OSC regulatory policy staff.

Under both options, the Board of Directors of the OSC, led by the Chair, would focus on the strategic oversight and corporate governance of the regulator. The CEO, a separate position from the Chair, would focus on the day-to-day management of the regulator. Lastly, a Chief Adjudicator would be appointed to oversee the adjudicative responsibilities of the tribunal.

Under this proposed structure, the CEO’s compensation should be tied to key performance indicators provided to the OSC’s board by the Minister of Finance. The key performance indicators should be subject to a periodic review and updates, as necessary.

An added benefit of this proposed structure is a more defined line between the Minister of Finance and staff through a Board and CEO who would advance the public policy mandates of capital market growth and investor protection.

Would commenters see greater efficiencies in maintaining a separate adjudicative tribunal within the current OSC structure? Would commenters prefer an independent tribunal that reports directly to the Minister of Finance? Under this new structure, who should have the authority to exercise rule-making (i.e. the CEO or the Board of Directors)? Are there certain matters that should not be transferred to a tribunal, but retained by the regulatory side of the OSC, such as mergers and acquisition hearings? In addition to capital market growth and investor protection, what other public policy imperatives – such as rules or a principle-based approach, for example - should be included in an initial mandate letter?

Self-regulatory organizations (SROs)

3. Strengthen the SRO accountability framework through increased OSC oversight

Currently, the Canadian Securities Administrators (CSA) conducts risk-based oversight of the two capital markets SROs, the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA). This oversight includes: periodic oversight reviews; the review and approval of proposed rules; and regular reporting by SROs of activities and regular meetings with the SROs.

The two national SROs play an important role in reducing the fragmentation in Canadian capital markets regulation and are at the forefront of developments in our fast-evolving markets. The important public interest mandate provided by the Minister of Finance to the OSC is carried out, in part, by the SROs. The successful fulfillment of this mandate requires the SROs to be aligned with Ontario’s vision to protect investors and facilitate growth in the capital markets. This is why we are proposing to revisit the SROs’ recognition orders to enhance their governance and oversight. The intent of this proposal is not to create further fragmentation, but rather support the OSC and the CSA’s efforts to improve the existing SRO structure.

The Taskforce heard from multiple stakeholders that the current governance and oversight framework is inadequate for IIROC and MFDA, does not consistently ensure alignment with the public interest, and results in unnecessary regulatory burden and cost on SRO-regulated firms. There should be greater stakeholder input on the SRO’s strategic and regulatory priorities to ensure that the SROs are spending resources on and undertaking a regulatory program that is aligned with the public interest.


For the reasons outlined above, the Taskforce proposes giving the OSC greater tools to oversee both SROs and any SRO that may replace them in the future. This would allow the OSC to ensure that both SROs fulfill their public interest mandate and that their approach to regulating registered firms is not overly burdensome or costly. This would also allow the OSC to fulfill its own objective of fostering fair and efficient capital markets through its oversight of the SROs. Stronger governance is also required to ensure that the appointment of the board of directors of SROs is independent of the management of the SROs.

The Taskforce proposes adding the following requirements to the OSC’s recognition order for both SROs: submit an annual business plan covering all activities conducted in Ontario to the OSC for approval; OSC veto on any significant publication, including guidance or rule interpretations; OSC veto on key appointments, including the Chair and the President and CEO, and term limits for key appointments. Both SROs should also be required in the recognition order to have directors with investor protection experience. Lastly, the compensation and incentive structure applicable to SRO executives should be linked to the delivery of the public interest and policy mandate delegated to these bodies.

The Taskforce also proposes that the OSC work with the other CSA regulators to transform how directors are appointed for SROs. Up to half of the directors should be appointed jointly by all CSA regulators and a mechanism should be put in place to resolve CSA disagreements on the choice of appointees in a timely manner. The Taskforce is also proposing to continue ensuring the independence of independent directors by having requirements similar to those applicable to an independent director of a public company, including a cooling-off period between working for a member firm and becoming an independent director. The number of independent directors should be higher than the number of directors from member firms. The actual number would have to be determined by function of how many directors would be appointed by the CSA. The SRO Chair would be required to be an independent director. These measures would instill a sense of confidence in both the oversight and functioning of both SROs.

The Taskforce is also considering proposing the creation of an ombudsperson service to address any complaints that SRO member firms may have about services received from their respective SRO.

Please provide feedback on the proposed approach and outline any challenges and concerns that may arise from this proposal that would apply to both SROs and any SRO that may replace them in the future. With respect to the proposal to create an ombudsperson service that addresses services provided by both SROs or any SRO that may replace them in the future, would commenters think that would be helpful and what should the role and powers of the ombudsperson service be? If an ombudsperson is recommended, what would be the possible protocols to ensure that it is not treated as a source of appeal of regulatory decisions?

4. Move to a single SRO that covers all advisory firms, including investment dealers, mutual fund dealers, portfolio managers, exempt market dealers and scholarship plan dealers

A number of dealers have dual platforms and are jointly regulated by both IIROC and MFDA, resulting in duplicative regulation. Given the evolution of the industry, having two separate SROs to regulate investment dealers and mutual fund dealers is outdated and is confusing to investors. Moving to a single SRO for all registered firms in capital markets that provide advice to investors would reduce regulatory complexity and costs, and would harmonize and modernize regulation across Canada.


To reduce regulatory fragmentation and arbitrage, the Taskforce proposes a two-phased approach to the move towards a single SRO further to the CSA-led process to review the structure of SROs in Canada that was recently announced.

In the immediate term, the Taskforce proposes to create a new single SRO that regulates both investment dealers and mutual fund dealers. This new single SRO would continue to conduct national market surveillance. It would reduce costs for dually regulated investment dealers and would result in a streamlined approach to enforcement. An underlying principle of the move to the new SRO would be that regulatory oversight must be commensurate with the market participant’s size and sophistication.

In the longer term, within twelve to eighteen months, the Taskforce proposes to further streamline regulation by transferring oversight of all firms distributing products and providing advice to investors, such as exempt market dealers, portfolio managers and scholarship plan dealers, from the OSC to the new SRO. It would also carry out statutory registration functions on behalf of the OSC for all of these firms, including registration of firms and individuals.

A single SRO structure that covers all registered firms providing advice to investors would lead to non-duplicative regulatory oversight, which is essential to healthy and efficient capital markets. The proposed two-phased approach is aimed to minimize disruption to SRO regulated firms while being responsive to the need to streamline regulations for dually regulated firms. The newly created SRO would operate subject to an enhanced accountability framework (as noted in the Taskforce’s proposal above).

Please provide feedback on the proposed approach and outline any challenges and concerns that may arise from this proposal.