The Taskforce proposes a series of recommendations to create a more modern and efficient securities regulator and a nimble capital markets regulatory framework that addresses market participants’ concerns. The role of the regulator should not only focus on policing, but also on the incubation of a diverse and thriving capital markets. A fair and efficient capital markets must balance streamlined regulation and enhanced enforcement. As the capital markets and regulatory landscape have evolved, stakeholders have voiced the need to enhance corporate and regulatory governance structures to align with global governance best practices. To achieve these objectives, we propose changes to the structure of the current securities regulator that modernize the strategic, regulatory and operational management of the regulator. More specifically, the splitting of the OSC Chair and CEO positions and the separation of the regulatory and adjudicative functions at the OSC would enhance corporate governance and provides opportunities for greater strategic focus.

Stakeholders support the capital markets regulator playing a greater role in facilitating economic growth in Ontario. Furthermore, given the ongoing COVID‑19 pandemic, regulators must adapt more quickly to technological advancements. An expansion of the OSC’s mandate to include fostering capital formation and competition will facilitate a more flexible regulatory framework.

From a governance perspective, separating the Chair and CEO roles at the OSC diminishes any appearance of a conflict of interest where the roles are combined. … Separating the adjudication from the regulatory role of the OSC is also good governance practice — the important issue is the independence of the functions.

Portfolio Management Association of Canada

One of the most pressing concerns that stakeholders raised is the regulatory fragmentation of capital markets in Canada. To address these concerns, the Taskforce has recommended a single self-regulatory organization (SRO) that can eventually oversee all advisory firms under a strengthened accountability framework.

Ontario Securities Commission (OSC) Governance

2. Expand the mandate of the OSC to include fostering capital formation and competition in the markets and change the name of the Ontario Securities Commission to Ontario Capital Markets Authority

The OSC’s mandate is to provide protection to investors from unfair, improper or fraudulent practices; foster fair and efficient capital markets and confidence in capital markets; and contribute to the stability of the financial system and the reduction of systemic risk.

Expanding the mandate aims to augment the regulatory policing function with a public policy imperative of growing the capital markets in Ontario. This change, alongside other recommendations, will lead to institutional and cultural transformation at the OSC. This, in turn, will lead to a more vibrant capital markets, fueled by innovation, competition and diversity. Other securities regulators, such as the U.K. Financial Conduct Authority, the Australian Securities and Investments Commission, and the Monetary Authority of Singapore, have a capital markets growth and competition mandate, which allows these regulators to address systemic barriers to growth, including over-regulation, fees and anti-competitive behaviour.

In consultations undertaken by the Taskforce, stakeholders noted that expanding the OSC’s mandate could help spur economic growth in Ontario and support the regulator in dealing with rapid technological changes. Furthermore, so long as the regulator’s mandate continues to uphold investor protection, these updates could help the OSC address aforementioned barriers, including anti-competitive behaviour.

With the transformative changes to Ontario’s capital markets regulatory framework and mandate, it is time to reassess the organization’s name and branding to be more reflective of a diverse capital markets sector.

Recommendation:

Given the significant role the OSC plays in relation to the vitality of the capital markets and investments in Ontario’s businesses, a legislative amendment to incorporate the fostering of capital formation and competition in the capital markets to the OSC’s mandate would encourage economic growth and help facilitate capital raising. These additions to the OSC’s mandate will not detract from the OSC’s existing mandate, including but not limited to maintaining investor protection.

The Taskforce is also recommending changing the name of the OSC to the Ontario Capital Markets Authority. Ontario Capital Markets Authorityis a name that is direct yet flexible enough to encompass all the regulatory activities that the organization undertakes now and in the future.

The change in name will encompass the entire capital markets sector and will reiterate the significant changes proposed within the organization, including the expansion of the organization’s mandate, the significant changes to its regulatory structure and efforts to modernize the system.

3. Separate the current combined Chair and Chief Executive Officer position into two distinct positions

In Taskforce consultations, stakeholders indicated that the OSC’s current governance structure impedes its role as a modern and globally competitive capital markets regulator. While Canadian securities commissions have traditionally been structured with a combined Chair and Chief Executive Officer (CEO) position, separating these positions would support a more effective delivery of the OSC’s mandate. An example is the recently established Financial Services Regulatory Authority of Ontario (FSRA) with separate Chair and CEO positions.

Reforming the governance structure at the OSC would create a modern regulator with a Board Chair focused on strategic oversight and corporate governance, and a CEO focused on the execution of the mandate and operational management of the regulator. This proposal has been recommended by several previous expert panels. footnote 36 In addition, separating the Chair and CEO positions is an enabling step in reorganizing the separation of the OSC’s regulatory and tribunal functions.

Recommendation:

The Taskforce recommends the following:

1. Separation of the Current Combined Chair and CEO Position

The current combined Chair and CEO position be separated into two distinct positions.

  • The Board of Directors, led by the Chair, would focus on the strategic oversight and corporate governance of the regulator.
  • The CEO would be responsible for the overall management of the organization and execution of the OSC’s mandate.
2. Appointment of the CEO

The CEO’s focus would be on the day-to-day regulatory oversight and the operations of the regulator, including the power for the CEO or a delegate to make investigation orders (see recommendation below).

  • The CEO would be on the Board of Directors with voting rights.
  • The first CEO would be appointed by the Lieutenant Governor in Council, on the recommendation of the Minister of Finance. The CEO would report to the Board of Directors.
  • Subsequently, the CEO would be appointed by the Board of Directors and would report to the Board of Directors.

The Taskforce envisions the CEO would act as a representative/spokesperson for the OSC in negotiations and consultations with stakeholders such as the CSA, the International Organization of Securities Commissions and other capital markets regulators.

3. CEO as Head of the Institution under Freedom of Information and Protection of Privacy Act (FIPPA)

Currently, under FIPPA regulations, the Minister is the head of the institution of the OSC and Ministry of Finance staff work with the OSC to manage FIPPA access requests. Pursuant to FIPPA, the head of an institution (such as the OSC) is responsible for overseeing administration, ensuring compliance, and making decisions regarding FIPPA.

The Taskforce recommends that under the proposed new governance structure, the OSC CEO be designated as the head of the OSC for FIPPA purposes. This is consistent with the approach taken when FSRA was established in 2019, as well as at other government agencies, and would supplement the new governance structure proposed for the OSC. Giving this responsibility to the OSC CEO would be appropriate and improve administrative efficiency. It would reduce the need to share records of market participants beyond the OSC.

4. CEO to Make and to Delegate the Power to make Investigation Orders

Under current securities laws, any OSC Commissioner can make investigation orders but s.6(3) of the Securities Act prohibits the Commission from delegating this power. This results in the Commissioner who made the order becoming conflicted out of any subsequent hearing related to the investigation order. To avoid this challenge, the OSC Chair and CEO within the current structure usually makes investigation orders because he/she does not sit on hearing panels. However, this can be logistically challenging if the OSC Chair and CEO is unavailable to make investigation orders.

The Taskforce recommends making legislative amendments to allow the OSC CEO or a delegate to make investigative orders. This would be aligned with many other Canadian jurisdictions, namely, Alberta, New Brunswick, Northwest Territories, Nunavut, Prince Edward Island and Yukon, where the investigation order-making powers of capital market regulators can be delegated.

4. 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. Members of the Commission serve an initial appointment for a term of up to two years, with the potential for extensions. Members of the Commission are part-time, while the current Chair & CEO and the Vice-Chairs are full-time Members. Part-time Members are independent of management and devote as much time as needed to perform their duties.

Stakeholders indicated in our consultations that the OSC’s corporate governance would be strengthened by establishing clear boundaries between the regulatory and adjudicative decision-making functions of the regulator. There is a growing consensus among policymakers, legal experts, and previous expert panels that a bifurcated model that clearly delineates regulatory and adjudicative functions aligns with best practices in leading corporate governance structures. Stakeholders also have noted that the current two-year term restricts their ability to effectively adjudicate and does not provide enough incentive to attract and retain talent.

The Society of Ontario Adjudicators and Regulators generally indicate that five-year terms, set by statute, would reduce uncertainty and promote the efficient use of resources, ensure consistency, continuity and legacies of expertise. footnote 37

Recommendation:

The Taskforce recommends through legislative amendments, the following:

1. Separate Adjudicative Tribunal

A separate adjudicative tribunal be established within the current OSC structure with the creation of a Chief Adjudicator position to lead the newly created tribunal, with no tribunal members serving on the Board of Directors.

  • The new tribunal would be operated as a separate function within the OSC.
  • Further, a Tribunal Secretary and Adjudicative Office would be established reporting to the Chief Adjudicator to support administering the mandate of the tribunal.
  • This approach is similar to the approach taken with the Ontario Energy Board, which also created a separate tribunal within the organization, and also similar to the approach that was developed under CCMR.
  • The Chief Adjudicator would determine the composition of adjudicative panels depending on the nature, complexity, scheduling and other necessary considerations for each case. In that regard, if particular expertise is needed for a matter, industry experts could be appointed by the Lieutenant Governor in Council (LGIC) as additional part-time tribunal members to be called upon when needed.

Persons directly affected by a final decision of the new tribunal, as well as the CEO, would have a right to appeal the final decision to the Divisional Court (see the Recommendation 6 below regarding the standard of review for such appeals below).

2. Tribunal Establishment

The Chief Adjudicator and the other tribunal members be appointed directly by the LGIC, on the recommendation of the Minister of Finance.

  • Individuals appointed to the tribunal should have the requisite experience and ability to conduct adjudicative proceedings effectively.
  • The Chief Adjudicator would report to the Board with respect to operational and administrative matters of the tribunal and would not otherwise participate in Board meetings.
  • The Chief Adjudicator would not report to the Board on matters related to adjudicative proceedings (other than providing information on proceedings once they have been completed).

Establishing the tribunal within the OSC would facilitate an independent tribunal focused solely on adjudicative proceedings, while maintaining the appropriate level of internal exchange of policy and regulatory developments, industry trends, and budgetary information between the tribunal and the OSC’s regulatory and board functions. This separation would help ensure that tribunal decisions are informed by, but not directed by policy decisions.

Establishing an internal tribunal with its own tribunal staff and members would be a cost-effective, timely and logistically simpler path forward to achieve the Taskforce’s policy objectives as compared to establishing an external tribunal. In addition, this approach would ensure the minimal disruption of ongoing adjudicative matters.

3. Tribunal Members’ Term

To better attract and retain talent and create greater continuity, the Taskforce is recommending extending the initial term of appointment for Tribunal members to up to five years. By extending the initial term to up to five years, the OSC will attract experienced and skilled Tribunal members who can, among other things, commit to lengthy hearings, as necessary, and continue to develop their capital markets expertise.

5. Ensure the securities regulatory framework and OSC's regulatory functions are reviewed periodically

The existing Securities Act provides that the Minister should appoint an advisory committee to review the legislation, regulations and rules related to OSC matters periodically. However, the last review of Ontario’s securities legislation and regulation was conducted 17 years ago in 2003.

Reviewing provisions in Ontario’s legislation is considered an important oversight mechanism for the rule‑making and self-governing powers OSC has been given.

There have been concerns that the OSC, an administrative body, was given rule-making authority that has the force of law without periodic review of those authorities — raising concerns about accountability.

Recommendation:

The Taskforce recommends legislatively mandating periodic reviews of Ontario’s capital markets legislation, as well as the OSC’s mandate, every five years, starting from when the legislation mandating the review comes into effect.

These policies would ensure that Ontario’s capital markets legislation remains aligned with developments in the sector, and that the OSC remains a modern and sophisticated regulator with a mandate suitable for an evolving marketplace. A periodic review of the capital markets regulatory structure would increase transparency and public accountability and ensure that best practices, such as evidence-based regulation and cost/benefit analysis, are incorporated when developing regulation.

The Minister would then determine if the recommendations had been implemented in alignment with the underlying public policy objectives and could direct the OSC to take additional actions if required. However, the Taskforce recommends that the first review assess the effectiveness of the recommendations specified below (outlined in detail later in the report) and report to the Minister within three years:

  • Reduce the hold period for certain securities issued by qualified reporting issuers;
  • Increase access to the shelf system for independent products;
  • Prohibit tying or bundling of capital market and commercial lending services;
  • Improve corporate diversity;
  • Transition towards an access equals delivery model;
  • Consolidate reporting requirements;
  • Expedite the SEDAR+ project;
  • Allowing reporting issuers to obtain beneficial ownership data;
  • Ensure that OSC consults on the regulatory framework concerning the distribution of and access to equities market data; and
  • Designate a dispute resolution service with binding decision powers.

6. Standard of reasonableness to apply to OSC tribunal decisions

In late 2019, in Canada (Minister of Citizenship and Immigration) v. Vavilov, the Supreme Court of Canada (SCC) indicated that, where a legislature has provided for an appeal from an administrative decision to a court, a court hearing such an appeal is to apply appellate standards of review to the decision. As a result, the standard of correctness on questions of law applies to final decisions of the OSC, whereas in the past the usual standard of review for appeals to the Divisional Court on questions of law for final decisions of the OSC had been reasonableness.

Recommendation:

As the Taskforce is recommending creating a new tribunal separate from the regulatory operations of the OSC (see Recommendation 4 above), including a panel of part time adjudicators who are experts in their respective fields, it is appropriate to consider whether to legislate a standard of review that would apply to appeals to the Divisional Court of final decisions of the new tribunal.

The Taskforce recommends a legislative amendment providing that, when hearing an appeal of a final decision of the newly created OSC tribunal, the Divisional Court would apply a standard of reasonableness when reviewing final decisions of the OSC tribunal on questions of law. This recommendation will ensure that there is an appropriate degree of deference to the new OSC tribunal’s expertise and that the historical status quo is preserved. In the vast majority of appeals of Commission decisions over the last twenty years, a standard of reasonableness was applied to the review.

The statutory amendment is not meant to apply to reviews relating to a breach of the principles of natural justice or the duty of procedural fairness. It would also not apply to the categories of questions identified in the Vavilov decision as attracting a standard of correctness, including: (1) constitutional questions; (2) general questions of law that are of central importance to the legal system; and (3) jurisdictional boundaries between two or more administrative bodies.

7. Reduce the minimum consultation period for rule-making from 90 days to 60 days for consistency with provisions in other jurisdictions and to reduce delays

The Securities Act requires the OSC to provide stakeholders at least 90 days after the publication of a proposed rule to submit written comments. Providing stakeholders with a reasonable opportunity to comment on proposals is important to effective rule-making. In some instances, a longer consultation period may also be warranted. Ontario is the only jurisdiction in Canada that requires the longer minimum 90-day consultation period. The longest minimum comment period among other CSA members is 60 days.

As part of the consultation, stakeholders, including the CSA, raised concerns that the OSC’s current minimum 90-day comment period results in unnecessary policymaking delays.

Recommendation:

In response to stakeholder feedback, amending securities legislation to shorten the minimum consultation period from 90 to 60 days would enhance policymaking efficiency and allow the OSC (and collectively, the CSA in cases where changes are to National Instruments) to enact timelier rule‑making that would be responsive to market changes and stakeholder feedback. This would also help to align rule-making practices with other CSA jurisdictions and produce greater national harmonization.

To avoid any confusion, the recommended shortened consultation period would only apply, following a formal legislative change, to newly proposed rules that are not already in the consultation process.

8. OSC-FSRA collaboration to achieve efficiencies

The OSC and FSRA are both agencies of the Ontario government, overseeing different aspects of Ontario’s financial services sector. The OSC oversees capital market participants, such as reporting issuers, investment industry intermediaries, and market infrastructure entities. FSRA, on the other hand, regulates activities of the insurance industry, credit unions and caisses populaires, mortgage brokers and pension plan administrators.

Recommendation:

Both the OSC and the FSRA should collaborate and examine potential back-office efficiency opportunities in areas such as:

  • Data centres: Amalgamate the data centres as both regulators are moving toward cloud-based technologies.
  • Technological advancement: Explore opportunities to work collaboratively to digitize regulatory operations and incorporate similar data analytics used for policy work, registrations and scenarios whereby the regulators are conducting oversight and investigations.
  • Call centres and websites: Resources dedicated to call centres and operating each regulator’s respective website (which are used as communication channels with investors/consumers/market participants) can be shared to reduce costs.

The Taskforce also recommends the cross-appointment of one or more individuals who sit on the Board of Directors of both regulators to develop a common strategic objective and direction where stakeholders from both regulated sectors of the industry are affected. The Taskforce encourages greater cooperation, coordination and collaboration between both regulators.

Furthermore, the OSC and FSRA should consider harmonized regulation of similar products and financial sectors to avoid regulatory arbitrage and regulatory burden.

The OSC and FSRA are both governed by boards accountable to the Minister of Finance. Both regulatory agencies are subject to the same government policies, directives and ministerial oversight, which would enable synergies and new opportunities when working in close collaboration.

SRO Regulatory Framework

9. 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

Many dealers operate dual platforms and are jointly regulated by both the Investment Industry Regulatory Organization of Canada (IIROC) and MFDA, resulting in duplicative regulation. Given the industry’s evolution, having two separate SROs with divided oversight by product is anachronistic and confusing to investors. A single SRO for all registered firms in capital markets that provide advice to investors would reduce regulatory complexity and costs, while harmonizing regulation across Canada.

Through the Taskforce’s public consultations, stakeholders strongly reiterated that the regulatory framework for SROs is outdated, and that a streamlined and modern SRO regulatory framework would be responsive to investors and advisors and reduce regulatory burden.

On June 25, 2020, the CSA published a consultation paper “Consultation on the Self-Regulatory Organization Framework” as part of its ongoing process to review the regulatory framework for SROs.footnote 38 The Taskforce recommends that following its consultation, the CSA adopts the Taskforce’s recommendations below.

Recommendation:

The Taskforce recommends a two-phased approach to move towards a single SRO.

1. Immediate Term

In the immediate term, a new single SRO that regulates both investment and mutual fund dealers should be created. This new single SRO would continue to conduct national market surveillance. It would reduce costs for dually regulated investment dealers and result in a streamlined approach to enforcement. An underlying principle of moving to the new SRO is that regulatory oversight must be commensurate with the market participant’s size and sophistication. Once the SRO’s registration capabilities are established to the OSC’s satisfaction, it would carry out statutory registration functions on behalf of the OSC for investment dealers and mutual fund dealers, including registration of firms and individuals.

2. Longer Term

In the longer term, following the creation of the new single SRO (that oversees investment and mutual fund dealers), the OSC Board should formally determine whether additional firms directly regulated by the OSC, such as exempt market dealers, portfolio managers and scholarship plan dealers, which distribute securities or provide advice to clients, can be added to the oversight by the new SRO. Progress toward this goal should be assessed twice — first at the three-year mark — and a final assessment three years later. When assessing the feasibility, the OSC should consider the following principles:

  • The implementation of a consolidated, single national SRO for capital markets that would replace IIROC and MFDA;
  • The OSC’s continued enforcement of a strong accountability and public policy alignment framework for the SRO (having been implemented as recommended in this report); and
  • Regulatory oversight by the SRO that is fit for purpose and is commensurate with the market participant’s size and sophistication.

Not all remaining categories of firms, such as exempt market dealers, portfolio managers and scholarship plan dealers, need to be transferred to the oversight of the new SRO at once. For the transfer of regulatory oversight, each category of firms must be assessed on their own merits. As a result, the transfer of oversight to the new SRO may be applicable for one or more categories and through staged phases.

The recommended two-phase approach minimizes disruption to SRO-regulated firms while remaining responsive to the need to streamline regulations for market participants. The newly created SRO would operate subject to an enhanced accountability framework.

3. Delegating More Registration Responsibilities to the new SRO in the Future

The Taskforce also recommends that, when certain conditions as set out below are met, the registration functions for firms overseen by the SRO be delegated by the OSC to the SRO, in addition to the registration functions for individuals of those firms. For greater certainty, the statutory authority for registration would remain with the OSC. Before delegating the registration of firms to the SRO, the OSC would verify that the following conditions have been met:

  • The SRO staff must have the direct authority to grant, deny, suspend or put terms and conditions on registration and establish an “opportunity to be heard”-type process for review of decisions without IIROC’s current District Council or Registration Sub-Committee’s input.
  • The OSC preserves its ability to impose terms and conditions on the registration or to suspend or terminate the registration of SRO dealer members.
  • The new SRO improves its registration processing efficiency and cost-effectiveness, including by establishing registration-related service standards.
  • Other requirements, as determined by the OSC, including requirements that the SRO has achieved enhanced accountability, transparency and regulatory enforcement.

10. Strengthen the SRO accountability framework through increased OSC oversight

Currently, the CSA conducts risk-based oversight of the two capital markets SROs, IIROC and 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.

IIROC and MFDA have important public policy roles in Ontario’s capital markets, yet stakeholders told us that these organizations do not have a well-defined accountability to, and alignment with, the Ontario Ministry of Finance and the OSC’s public policy goals. In an already fragmented capital markets framework, this must change.

The two national SROs are integral to reducing fragmentation in Canadian capital markets regulation and are at the forefront of 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 align with Ontario’s vision to protect investors and facilitate growth in the capital markets.

To this end, the Taskforce recommends improvements to the SROs’ recognition orders to enhance their governance and oversight. This recommendation supports the OSC’s and the CSA’s efforts in improving the existing SRO structure, as reflected in the 2020 CSA SRO Consultation.

The Taskforce recommends that the CSA adopts the Taskforce’s recommendations below with respect to the appointment of SRO directors by the CSA.

Recommendation:

Giving the OSC greater tools to oversee both SROs and any SRO that may replace them in the future would allow the OSC to ensure accountability and public policy alignment. Stronger governance ensures that the appointment of the board of directors of SROs is independent of the management of the SROs. Ideally, this recommendation would apply to a consolidated capital markets SRO (See Recommendation 9 above). If however, within six months of the release of the report, significant progress has not been made on consolidation, the Taskforce recommends implementing this recommendation as it applies to the existing SROs.

1. Increased OSC Oversight of SROs

Prior to the consolidation of the two SROs (if significant progress has not been made on the consolidation within six months), the Taskforce recommends adding the following requirements to the OSC’s recognition orders for MFDA and IIROC (this would apply to any SRO that may replace them in the future):

  • Require the SROs to formally solicit the OSC and Principal Regulator’s direction when developing their annual strategic and regulatory priorities, and to develop their annual business plan in alignment with the priorities that the OSC identified for the SROs.
  • The OSC and other Principal Regulator (as defined under the current Memorandum of Understanding between the SRO and the securities regulators) be able to veto any significant publication, including guidance or rule interpretations.
  • The OSC and other Principal Regulator (as defined under the current Memorandum of Understanding between the SRO and the securities regulators) be able to veto key appointments of the Chair and the first President and CEO, and term limits for those key appointments to be set by the OSC and other Principal Regulator.
    • The veto would allow the OSC to evaluate the Chair and CEO appointments to ensure that these key positions are being filled by individuals who can be counted upon to carry out their public interest responsibilities, including by meeting the required competence and capability requirements. Using the veto for these purposes would limit the risk of disagreements with other jurisdictions around the nature of those appointments.
    • The veto would not apply to subsequent President and CEOs.
2. Improving the Board of Directors of SROs

Furthermore, the SRO recognition orders should require that SROs (and any SRO that may replace them in the future) have some directors with investor protection experience. As well, 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 OSC should continue to work with the other CSA regulators as part of the ongoing SRO review to change how directors are appointed for SROs. Up to half of the independent directors should be appointed jointly by all CSA regulators and a mechanism should be put in place to implement CSA director appointments, including a timely and effective process to resolve potential CSA disagreements on appointments.

The Taskforce recommends measures to instill confidence in the oversight and operations of both SROs (and any SRO that may replace them in the future) and continue ensuring the independence of their independent directors by also amending the OSC’s recognition orders to require that:

  • The definition of an SRO independent director mirrors that of a public company, including a cooling-off period of three years between working for, or being directly affiliated with, a member firm and becoming an independent director;
  • The number of independent directors is higher than the number of directors from member firms; and
  • The SRO Chair to be an independent director.

The Taskforce recommends the following for the board composition of the SRO, when there is a move to a single SRO in the future that would oversee investment dealers and mutual fund dealers and also conduct market surveillance:

  • Not more than fifteen directors (including the CEO);
  • A majority of independent directors (including at least four directors appointed by the CSA). Neither current nor former commissioners or employees of CSA regulators would be eligible for such appointments within a three-year cooling-off period;
  • The CEO and Chair being independent directors; and
  • Adequate representation of mutual fund dealer firms and of directors representing non-bank affiliated dealers.

If these oversight changes are implemented prior to consolidation, the following board composition for IIROC is recommended:

  • Seven directors from industry member firms (five from investment dealers and two from marketplaces) including at least two directors representing non-bank affiliated dealers; and
  • Eight independent directors, including the CEO (of which four would be appointed by the CSA). Neither current nor former commissioners or employees of CSA regulators would be eligible for such appointments within the three-year cooling-off period.

If these oversight changes are implemented prior to consolidation, the following board composition for the MFDA is recommended:

  • Six directors from industry member firms including at least two directors representing non-bank affiliated dealers; and
  • Seven independent directors, including the CEO (of which four would be appointed by the CSA). Neither current nor former commissioners or employees of CSA regulators would be eligible for such appointments within the three-year cooling off period.

The current requirements for independence are contained in the current recognition orders for SROs, which provide that at least 50 per cent of its board of directors (other than the President) are independent/public directors. The Taskforce recommends incorporating the meaning of “independent” in NI 52-110 into the new recognition order for MFDA and for IIROC with respect to their independent directors.

11. Remove the role of SRO district councils in making registration decisions and create an SRO escalation process to address complaints that SRO members may have about services received from their respective SROs in Ontario

Stakeholders have raised concerns with the Taskforce regarding the way that SROs carry out their registration and oversight roles, including complaints about regulatory burden on registrants. IIROC’s current registration decision-making architecture defers key and extensive registration-related decisions to IIROC’s District Councils (or their Registration Sub-Committees, as applicable). These District Councils are exclusively comprised of industry appointees (not permanent IIROC regulatory staff). Similar to IIROC, MFDA also has district councils; however, unlike IIROC, MFDA does not currently carry out registration functions on behalf of the CSA (including the OSC).

Recommendation:

The Taskforce recommends that all registration and similar gate-keeper functions of IIROC be carried out by IIROC regulatory staff exclusively, without any District Councils’ involvement. The role of District Councils regarding registration matters should be advisory only. This recommendation also applies to any other SRO that may carry out registration functions on behalf of the OSC in the future.

Within twelve months, the OSC should create and oversee an escalation process to address any complaints that SRO member firms may have about services received from their respective SROs in Ontario. The escalation process should have protocols that ensure that it is not used as a source of appeal of regulatory decisions, as appeals would continue to fall within the exclusive jurisdiction of the OSC (or the Tribunal once established).

The OSC should develop the mandate and scope of the escalation process, ensure the binding effect of its decisions, and oversee the escalation process to ensure its organizational structure is commensurate with its use.

The OSC should determine whether the same escalation process would apply for both currently existing SROs (until such time as we move to a single SRO). The escalation process should be funded by the SROs and the SROs should be required to publish an annual report.

Footnotes