On May 3, 2024, the Ontario Securities Commission (the “OSC”) unveiled its strategic plan for 2024-2030 (the “Strategic Plan”). With the goal of making Ontario’s capital markets inviting, thriving, and secure, the Strategic Plan sets out six strategic goals that will guide the regulator for the next six years.  

The Strategic Plan marks the first overhaul of the OSC’s strategy since 2011 and comes after Ontario’s Capital Markets Modernization Taskforce (the “CMMT”) completed its mandate to provide the Government of Ontario with recommendations to reduce regulatory burden and ensure a level playing-field for all market participants, while improving investor experience and protection. In fulfilling its mandate, the CMMT made a number of recommendations to modernize the OSC and further drive innovation and competitiveness in Ontario’s capital markets.

The Strategic Plan recognizes that Ontario’s capital markets are rapidly changing, and that factors such as shifting population demographics in the province, an increasing distrust in public institutions, and uninhibited access to artificial intelligence (“AI”) will shape how securities are traded. Thus, while the Strategic Plan provides certain direction and guidance, it is not meant to be static; it will be tested and reevaluated as the OSC navigates – and proactively seeks to address – new and emerging challenges in the province’s capital markets.

Key Themes in the Strategic Plan

Three key themes spanning across the OSC’s goals are apparent in the Strategic Plan:

1. The OSC recognizes both the opportunity and risks of AI being used by businesses and investors

The OSC understands that capital markets participants are increasingly using AI in new and creative ways to improve efficiency, detect market manipulation, and refine their forecasting and analytics. Last year, the OSC Innovation Office published a report on use cases for AI in Ontario, helping market participants better understand how they can leverage the transformational technology.

At the same time, the OSC has signaled that it remains deeply concerned about the potential use of AI by malicious actors. The OSC states that it will continue monitoring changing technologies to ensure that capital market participants are not exposed to security threats. On this frontier, the delicate challenge for the OSC will be addressing these emergent threats effectively without unduly curbing technological innovation.

The OSC may look to securities regulators in jurisdictions outside of Canada, which have also begun to regulate around the use of AI and related technologies. In 2023, the U.S. Securities and Exchange Commission (the “SEC”) proposed new rules to protect investors from potential conflicts of interest when broker-dealers and investment advisers use predictive analytics. More recently, the SEC has taken a hard stance on businesses that exaggerate the use of AI in their products and business operations. On March 18, 2024, the SEC charged two companies for “AI washing,” recognizing that investors are increasingly making investment decisions based on how businesses purport to leverage the technology.  

2. The OSC is committed to building trust with market participants

The OSC recognizes that trust in public institutions and traditional authorities is eroding. The Strategic Plan suggests that the OSC will make a concerted effort to build (or rebuild) trust with capital market participants. Some strategies the OSC will deploy include providing tailored supports to businesses and investors and building a more robust redress system. The Strategic Plan also has a “naming and shaming” element, with the OSC promising to widely publicize high profile cases of misconduct.

3. The OSC is committed to making Ontario’s capital markets more inviting for all participants

Another focus for the OSC is ensuring that diverse and underserved communities can also reap the rewards of participating in Ontario’s capital markets. While the Strategic Plan is vague on how the OSC will go about achieving this goal, there is no doubt that it will be a complex challenge for the regulator.

Many communities face barriers to meaningfully engaging in the capital markets. For example, retail investors need, at minimum, high-speed internet to access trading platforms. This can make it difficult for many communities, such as those in northern Ontario, to access the capital markets. Moreover, having financial and investing literacy is essential for successfully participating in the capital markets. This can also serve as a barrier for underserved communities from being able to capitalize.

Although further democratizing capital markets is a formidable task, the Strategic Plan may represent the OSC taking steps towards doing so. International organizations have already started to consider how this challenge can be best addressed. In 2022, the World Economic Forum published a report on democratizing retail investing, which can be read here.

Goals in the Strategic Plan

A summary of the OSC’s strategic goals, as set out in the Strategic Plan, is below:

1. Expediently deliver effective regulatory actions in anticipation of emerging trends

Technological advances, such as those relating to AI and crypto assets, will continue to disrupt how securities are traded both in Ontario and beyond. The OSC will implement a systematized approach for responding to these new and emerging trends, ensuring that investors and businesses have appropriate guidance and protection. The OSC’s efforts in this area will be focused on:

• Regularly identifying and analyzing emerging trends in capital markets.
• Providing timely and appropriate regulatory responses to new developments in the market.
• Providing regulatory certainty to foster prudent innovation.
• Minimizing investor losses related to underappreciated risks involving new trends.

2. Enhance the experience of individual investors

With the OSC’s recognition that no two investors are the same, the regulator intends to tailor its approach when addressing the concerns of different segments of the investor community. A key pillar of the OSC’s strategy will be conducting investor outreach, especially in underserved communities. This outreach will help the OSC respond to concerns with deliberate and targeted solutions. The OSC’s efforts in this area will be focused on:

• Positioning investors to make better life-cycle investment decisions.
• Creating a robust investor redress system.
• Helping investors and advisors to have a better understanding of financial and securities markets.
• Minimizing regulatory and structural barriers to investing.
• Reducing investor harm.

3. Dynamically right-size regulation based on changing needs, risks and practices in Ontario and globally

The OSC acknowledges that capital markets are becoming more complex, technology-driven, and globally integrated. As such, the OSC will have to balance guarding against emerging risks, while keeping regulatory compliance manageable. The OSC’s efforts in this area will be focused on:

• Making the Ontario capital markets more attractive to diverse groups of businesses and investors.
• Effectively assessing regulatory actions for appropriateness and effectiveness.
• Reducing undue burden for market participants.
• Continuing to influence the global regulatory agenda and ensuring it aligns with the needs of Ontario’s capital markets.
• Responding more effectively to international and cross-border developments that impact the capital markets.
• Optimally allocating regulatory responsibilities between the OSC and other regulators, including the Canadian Investment Regulatory Organization.

4. Implement a tougher, and more publicized, response to capital markets misconduct

While the benefits of technological and financial innovations for the capital markets are widely touted, the corollary is that new and emerging developments are creating more opportunities for financial misconduct. The OSC intends to strengthen every aspect of its enforcement-related activities, including by bolstering its Whistleblower Program and intensifying collaboration with other law enforcement agencies. The OSC’s efforts in this area will be focused on:

• Vigorously prosecuting serious financial crimes.
• Increasing the number of impactful administrative proceedings.
• Enhancing the OSC’s reputation as an effective enforcer, including on sophisticated files.
• Improving regulatory compliance and deterring misconduct in both the private and public markets.
• Increasing the OSC’s collection rate.

5. Foster conditions for capital formation and innovation in both public and private markets

The OSC is committed to engaging with businesses – especially in growing and underdeveloped industries – to support new capital formation. The regulator will monitor capital formation trends and flows to ensure that Ontario’s regulatory environment is inviting to businesses and investors alike. The OSC’s efforts in this area will be focused on:

• Enabling businesses in Ontario to raise more capital to meet their needs for growth.
• Making Ontario’s business environment even more attractive for firms and investors.
• Improving financing availability at all stages of business growth across the private and public markets.
• Developing a strong finance ecosystem for select growth business sectors (e.g. green industry).
• Improving confidence in the Canadian market ecosystem, recognizing it is a global competitive advantage.

6. Strengthen OSC’s position as a trusted and influential voice in Canadian capital markets

In addition to its traditional regulatory role, the OSC will increase its focus on advocacy and education. The OSC strives to become a trusted and influential source of impartial information for capital markets participants, delivering thought leadership through consumable formats. The OSC’s efforts in this area will be focused on:

• Becoming an authoritative source of information on risks and best practices in capital markets.
• Influencing opinions, behaviors, and policies within its regulatory purview and across the financial regulatory spectrum.
• Increasing compliance through enhanced awareness of OSC rules and other regulatory requirements.
• Ensuring investors, advisors, and market participants demonstrate knowledge and understanding of risks and opportunities in capital markets.

Key Takeaways

The capital markets are undergoing rapid and dynamic changes, driven by emerging technologies and trends. Market participants should take note of the OSC’s strategic goals over the next six years, especially those designed to enhance regulatory responsiveness and investor protection. The OSC’s emphasis on quickly delivering effective regulatory actions in response to emerging trends (Goal 1) is a clear signal for market participants to remain vigilant and proactive.

Additionally, the OSC’s focus on enhancing the investor experience (Goal 2) and dynamically right-sizing regulation (Goal 3) has direct implications for market participants. Enhancing the investor experience involves tailored approaches that address the unique risks and opportunities faced by different investor segments. Market participants should be prepared for efforts to reduce investor harm and support do-it-yourself investors, which will lead to a more transparent and fair investment environment.

Overall, the OSC is signaling that it is preparing itself for the next generation of innovation and disruption. The Strategic Plan provides a flexible roadmap for the regulator to follow as it seeks to balance competing objectives including supporting innovation, maintaining security, and democratizing Ontario’s capital markets.

McCarthy Tétrault’s leading Capital Markets and Securities Litigation groups are well-equipped to provide businesses and investors with practical advice and support in navigating all aspects of Canada’s dynamic capital markets. Please contact the authors or any member of the Capital Markets or Securities Litigation groups to learn more – we would be happy to assist you.