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Doug Ford’s stance on tougher securities laws unknown as he takes power

Doug Ford’s stance on tougher securities laws unknown as he takes power
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TORONTO — The election that brought Doug Ford and the Progressive Conservatives to power in Ontario has thrown some policies of the soon-to-be former Liberal government into limbo. Included among them, it turns out, are previous promises to toughen up the province’s securities laws and introduce new regulations around benchmarks referenced by trillions of dollars in financial instruments.

In March, the then-Liberal government at Queen’s Park tabled a budget that included a section on “updating” the laws of the capital markets — the largest of which in Canada is in Ontario.

“Fair, vigorous and timely enforcement of Ontario’s securities laws is essential to protecting investors and fostering confidence in the capital markets,” the budget said.

It added that the government “plans to propose” new tools for the Ontario Securities Commission “to enhance and expand its existing enforcement activities.”

Among those planned tools was a new offence for obstruction of an investigation in both Ontario’s Securities Act and Commodity Futures Act, as well as allowing for the OSC to make “reciprocal” orders when certain sanctions and other “key” orders are issued by another securities regulator.

The budget also said that the government was proposing “to establish a regulatory regime for financial benchmark administrators, contributors and users to reduce the risk of manipulation of those benchmarks and to align with international requirements.”

“New rules for benchmarks would improve protection for investors and capital markets against misconduct,” the budget added.

Meanwhile, the budget legislation was passed and received royal assent on May 8, the same day the June 7 election was called. Ford and the PC Party went on to win a majority of seats in the election, with the Liberals relegated to third place.

A spokesperson for Ford, who is to be sworn in as premier on Friday, said in an email that they would “have a better sense of things once we are in government and have sworn in our cabinet.”

If the changes are ultimately not made, the Ontario government’s previous plan to further regulate the world of financial benchmarks will have fallen by the wayside at a particularly sensitive time.

Canada’s main benchmark is the Canadian Dollar Offered Rate, or CDOR. The rate is used for derivatives, in addition to floating-rate notes and loans, and was referenced by more than $13 trillion in financial instruments as of the end of 2017, according to the Bank of Canada.

CDOR is a lending-based rate, however, unlike Libor. It is set daily using a survey of the Big Six banks, which submit the rate at which they would be willing to lend funds to corporate clients using bankers’ acceptances, a type of short-term credit instrument.

Bank of Canada deputy governor Lynn Patterson noted in a speech earlier this month that CDOR had been “strengthened in a number of ways” since 2014, such as by the appointment of Thomson Reuters as administrator of the rate, and with the Office of the Superintendent of Financial Institutions regulating the governance and risk controls around the banks’ submission processes.

Yet at the Ontario level, the financial benchmarks are not subject to as much regulatory scrutiny.

“The Ontario Securities Commission (OSC) does not have the express authority to regulate financial benchmarks and benchmark administrators, contributors and users in a comprehensive manner,” an Ontario Finance Ministry spokesperson said in an email. “However, the OSC does have regulatory authority over securities and derivatives tied to certain benchmarks and the market conduct of capital market participants.”

While its claims have not been proven in court, there has been at least one lawsuit launched over CDOR. In that case, a Colorado pension fund alleged several banks had engaged in an “unlawful conspiracy to increase the profitability of their derivatives trading business by manipulating” the Canadian dollar rate.

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