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The Ontario Capital Markets Modernization Taskforce have released their final report to the Ontario Ministry of Finance, following the July 2020 consultation which sought input on a wide range of proposals.
We previously provided you with a summary of the draft proposals in October 2020. The Taskforce’s 74 final recommendations include proposals intended to improve regulatory structure, promote competition, foster innovation, modernize enforcement, and enhance investor protections, proxy administration and corporate governance.
The final recommendations cover extensive areas of proposed reform. Of particular relevance to our Ontario-incorporated issuer clients and the services we provide, proposals addressing the proxy system, corporate governance and mergers and acquisitions include:
- Allowing issuers to obtain all beneficial owner data (NOBO and OBO), and transmit proxy information and solicit proxies from such owners, by September 1, 2022, and in the interim ensure that NOBO is applied as the default for beneficial owner accounts
- Establishing rules to prevent over-voting, including prohibiting voting with borrowed shares
- Reducing the ‘early warning’ ownership reporting threshold from 10% to 5% for non-passive investors
- Requiring the use of Universal Proxy ballots for contested elections, and mandating vote disclosure between both sides by September 1, 2022
- Introducing ’access equals delivery’ for disclosure documents, including meeting-related materials
- Establishing a regulatory framework for proxy advisory firm oversight, including allowing issuers a right of rebuttal for proxy advisor reports
- Requiring disclosure of material ESG information; annual advisory shareholder votes on the Board approach to executive compensation; and enshrining annual director elections and individual director voting requirements as well as majority voting for uncontested director elections into securities law (already required under TSX and TSX-V Rules)
- Requirements for the role of independent directors in conflict of interest transactions
The Taskforce withdrew the proposal to adopt periodic filing requirements for institutional investors of Canadian companies, similar to U.S. form 13F filings.
The Taskforce has acknowledged that some of these recommendations regarding the proxy system require technical expertise to facilitate effective implementation, and this is an issue where we expressed concern in our submission on the draft report. It has accordingly proposed that the OSC set up representative committees, drawing on industry participants, to address the following:
- A technical implementation committee to address issues involved in operationalizing the proposed rules to be introduced to prevent over-voting. These include requiring the issuer or their tabulator to notify intermediaries of any vote rejections, and the issuer must obtain the DTC omnibus proxy and provide it to the tabulator 10 days prior to the meeting.
- A stakeholder group to help implement issuer access to all beneficial owner data by September 1, 2022, effectively moving away from the current NOBO/OBO distinction, and in the interim, establishing NOBO as default status for beneficial holder accounts.
The Taskforce members have acknowledged the complexities of proxy reform and have stated that they anticipate a focused effort to achieve these efforts. We continue to monitor progress on the Taskforce recommendations and will seek to engage with the Ontario Securities Commission (OSC) as they consider formation of these representative stakeholder groups. If you have questions, please contact Claire Corney, Senior Managing Director, Regulatory & Market Initiatives at claire.corney@computershare.com.