Stakeholders tell OSC: Don’t cut investor protection while trimming regulatory burden

Industry trade groups and investor advocates alike are applauding the Ontario Securities Commission’s (OSC) effort at reducing regulatory burdens — albeit with different visions of how to get there.

The initial feedback to the OSC on its initiative to seek ways to “lighten the load” imposed by regulation is generally positive, with both the investment industry and advocates for investor interests lauding the regulator’s underlying objectives. Both camps see benefits to cutting regulatory costs, although investors insist that regulatory protections must not be sacrificed along the way.

In its submission, the Investment Industry Association of Canada (IIAC) says that it “fully supports” the OSC’s efforts to find ways to save time and money for issuers, industry firms and investors in complying with regulatory requirements. At the same time, shareholder advocacy group the Canadian Coalition for Good Governance (CCGG) voices its support for reducing unnecessary regulation, “but only to the extent that any reduction is consistent with […] maintaining investor protection and market integrity.”

The IIAC highlights a number of areas where, it believes, that the regulators could make progress including both rule changes and operational enhancements. On the operations side, among other things, it recommends that the OSC make various improvements to the compliance review process, and that data requests to firms be more focused and less complex to fulfill. In terms of policy, the IIAC calls for the regulators to better enable electronic delivery of documents to investors, along with other proposed changes.

Both the IIAC and the Portfolio Management Association of Canada (PMAC) also call on the OSC to help reduce burdens on the industry by investing in technology that could ease the cost of complying with certain filing and reporting requirements. In particular, the IIAC says that the OSC should modernize its SEDAR, SEDI and CTO databases “to enhance efficiencies and establish a seamless and user-friendly online experience.”

The PMAC also recommends that the regulator invest more heavily in technology to “streamline data gathering, sharing, and analysis.” It suggests that the regulators create a single system for submitting and updating all the data that the industry is required to provide, and that this system also calculate firms’ regulatory fees and enable online payment.

“Without a major investment in tech, we believe OSC staff and registrants will continue to struggle with burden, unnecessary cost and time lost dealing with archaic, disjointed systems,” the PMAC says. “Alongside this material investment in tech, there should be a reimagining of the OSC’s processes, workflow, and collaboration internally and with the [Canadian Securities Administrators (CSA)].”

In terms of the rules, the PMAC points to the existing reporting requirements associated with outside business activity (OBA) as a candidate for improvement. And it points to the CSA’s proposed Client Focused Reforms and proposed new rules for derivatives markets as areas where regulators should ensure that they don’t introduce unwarranted new costs.

This is one area where the industry and investor advocates sharply disagree. In its submission, the Investor Advisory Panel (IAP) says that projects such as the Client-Focused Reforms should be off limits. It argues that initiatives such as the Client-Focused Reforms and reforms to fund fee structures “already have been exposed to a protracted and thorough review process” and that they should be excluded from the burden reduction effort.

Instead the IAP recommends that the OSC look to reduce the costs associated with its existing policy development process, which it says is too slow and resource-intensive. “It’s the investing public who bear the greatest burden when reforms aimed at safeguarding them are delayed — they remain at risk, and in the interim some get harmed,” it says. “That is a burden we believe the commission can minimize by taking a more resolute approach when developing policies and rules.”

Additionally, the investor group says that the OSC should be able to curb compliance costs by first focusing on eliminating administrative red tape, before turning its attention to tougher issues such as changing rules that could impact investor protection.

The CCGG is also concerned that the regulators avoid sacrificing investor protection in the name of expediency. For example, while it supports enhancing electronic filing, it opposes proposals that “would reduce the timeliness and utility of information provided by issuers.”

“Whether or not a regulatory requirement is considered unnecessary or unduly burdensome must consider not just the requirements of the issuer but also the needs of institutional investors to obtain accurate, transparent, relevant and timely information,” the CCGG maintains.

The group also recommends that regulators continue with efforts to enhance firms’ environmental, social and governance disclosures. “New guidance and/or new disclosure requirements should contribute to a reduction in the amount of time spent by issuers on interpreting disclosure compliance and may also potentially reduce the amount of one-off information requests from investors,” it says.

The initial public consultation period for the OSC’s burden reduction effort closed March 1, and the regulator is planning to hold a roundtable on March 27 to discuss some of the ideas raised in the submissions it received.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.