On January 22, 2021 the Capital Markets Modernization Taskforce (Taskforce) released its final report (Report). The Taskforce was established by the Ontario Provincial Government to help transform the regulatory landscape for the capital markets sector, and advise the Minister of Finance on how to improve the innovation and competitiveness of the Province’s capital markets and best help build Ontario’s economy.

The Report includes 74 policy recommendations designed to amend securities laws in the following areas: improving regulatory structure to enhance governance; improving competitiveness through regulatory measures; ensuring a level playing field between large and small market players; improving the proxy system, corporate governance and the process of mergers and acquisitions; fostering innovation and modernizing enforcement and enhancing investor protection.

Because of the far reaching nature of the numerous recommendations, BAX will do a series of articles over the next few weeks on recommendations of interest to small and midcap issuers and the registrants that service them. 

Recommendation #32 –  Digital and Crypto Assets

The Taskforce recommended that an expansion of the powers of the Ontario Securities Commission (OSC) to designate novel products as securities would provide regulatory clarity to businesses with unique offerings and appropriate protection to investors.

According to the Report, digital and crypto assets continue to be an emerging area of the capital markets. The Report points to a variety of different types of crypto assets meriting different approaches to regulation. For example:

  • Certain crypto assets, such as Bitcoin and Ether, share many similarities with commodities, and are not currently in and of themselves, securities or derivatives;
  • Other crypto assets, such as digital or tokenized versions of traditional securities or derivatives with crypto assets as an underlying interest, are classified as securities and/or derivatives and are subject to regulatory requirements; and
  • “Crypto-asset contracts” (i.e., contractual rights to receive crypto assets), which in many cases constitute securities as evidence of indebtedness and investment contracts, are currently subject to regulatory requirements and may raise significant investor protection concerns.

In the view of the Taskforce, there is uncertainty around the classification of these assets and certain financial assets, such as crypto assets, may benefit from the OSC’s regulatory oversight. The Report refers to jurisdictions, including the United Kingdom and the European Union, that have recently proposed comprehensive frameworks for the regulation of certain types of crypto assets.

The Taskforce stated, in its view, providing the OSC with the power to designate certain crypto assets as securities and/or derivatives would alleviate market uncertainty. The Taskforce recommended giving the OSC expanded designation powers to make an order designating:

  • A derivative, or a class of derivatives, to be a security;
  • A security, or a class of securities, to be a derivative;
  • A contract or instrument, or a class of contracts or instruments, to not be a derivative; and
  • A security, or a class of securities, to not be a security.

For a full copy of the Report:

For more information, please call Barbara Hendrickson at BAX Securities Law (647) 403-4606.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.