In the retail investment market, regulators have expressed their dissatisfaction with the reduction in product offerings by banks. They cite the tightening of know-your-customer (KYC) and know-the-product (KYP) requirements, introduced as part of customer-focused reforms, to justify their decisions.
 At the CSA, we were disappointed to see this reaction which consists, for the big banks, of limiting themselves solely to proprietary products,†Stan Magidson told the committee.
Grant Vingoe expressed a similar view, also expressing disappointment with the banks’ position that they can only provide adequate control over their own products.
He emphasized that the client-focused reforms do not impose a compliance burden heavy enough to justify such a significant reduction in product offerings, including the exclusion of third-party investment funds, nor the abandonment of securities distribution or research coverage of emerging issuers.
“They have largely withdrawn from offering securities of emerging companies, not because of customer-focused reforms, but because of their own financial interests and the rationalization of their activities,” assured Grant Vingoe.
Following their testimony, the chairman of the committee, Clément Gignac, suggested that the banks’ practices could justify a referral to the Competition Bureau.
Committee members also highlighted the dominant position of banks in the Canadian investment industry, as well as the difficulties encountered by independent brokers.
While regulators acknowledged that compliance requirements could contribute to this situation, they also stressed that the structure of the sector largely reflects commercial realities. They particularly mention the advantages that banks have with issuers, thanks to their ability to offer commercial credit in addition to investment banking services.
If several small brokers have chosen to refocus on activities such as wealth management rather than on the financing of emerging issuers, Stan Magidson recalled that a segment of the independent broker sector remains active in the venture capital markets.
 There is an activity [chez les courtiers indépendants]and if the regulators can do something to increase the attractiveness of this sector, we will do it, but for the most part, the market expresses itself and business models adapt,” he said.
Support capital raising
On the issuers’ side, regulators recall having recently put in place several measures to support the raising of capital. These include a pilot project allowing companies listed on venture capital markets to publish half-yearly reports, as well as initiatives to expand prospectus exemptions.
In particular, they highlighted the success of the exemption for listed issuers, which allows public companies to raise up to $50 million per year without producing a full prospectus.
Grant Vingoe indicated that, since the introduction of this exemption, companies have collectively raised $3.8 billion through this mechanism. This is part of an evolution in the regulatory approach, favoring the ability of companies with solid continuous disclosure practices to raise capital without having to produce new full prospectuses.
The committee also addressed the issue of simplifying the regulatory framework and the possibility for Ontario to join the CSA passport system.
In this regard, Grant Vingoe indicated that the fundamental objective of regulators remains to ensure a high degree of harmonization and collaboration across the country, while specifying that Ontario’s membership in the passport system is a decision of the provincial government.
