With the pandemic, blockchain, and Wall Street Bets all pulling the financial world in different directions, regulators are scrambling to adopt strategies. Strategies that protect investors while keeping capital from flowing into less regulated markets. We’ll go over the basics of capital markets below, as well as looking at the new drafts of securities legislation for Ontario.

When navigating the increasingly globalized landscape of capital market regulation, keep your IT infrastructure in mind. You may need to make changes to your data storage and workflow strategy to keep up with compliance.

Illustration What are capital markets

What are capital markets?

According to Investopedia, capital markets are spaces where savings and investments are channeled from suppliers to seekers of capital. The stock market is perhaps the most prominent example. Bond markets, cryptocurrency trading platforms, and even Dragon’s Den are also forms of capital markets.

What does market capitalization mean?

Market capitalization, also called a market cap, is the dollar value of a company’s stock shares. This number is often used by investors to determine the size of a company. The term refers to a characteristic of an individual enterprise. A capital market, on the other hand, is a platform where capital is channeled to and from many different entities.

In a healthy capital market, the total pool of capital will grow over time as it is judiciously employed by diverse actors. The level and type of regulation in a capital market can determine whether it grows, stagnates, or crashes. With global economic upheaval impacting capital markets in new and unexpected ways, Canadian regulatory agencies are looking to modernize their financial practices. We’ll look at Ontario’s new modernization task force and the impact of their recommendations on the Capital Markets Act below.

Illustration Ontario Modernization task force

Ontario’s new modernization task force

The province of Ontario hosts Canada’s major stock exchange as well as numerous businesses and financial institutions. However, their Securities Act has not been updated in over 15 years. Rapid changes are sweeping through the world economy, and Canadian capital markets can’t afford to fall behind countries who are faster to adapt.

The creation of the Capital Markets Modernization Taskforce had, as their objective, to bring Ontario up to date with the many global market changes. And lots of them have occurred since the last draft of securities legislation. They aim to improve regulatory structure and investor protection, reduce duplicative regulatory burdens, and to foster equality between large and small market actors.

Key goals of the Capital Markets Modernization Taskforce :

  • Promote innovation;
  • Reduce the burden of redundant information sharing in mandatory compliance programs;
  • Level the playing field for all actors in the market, making the capital markets in Ontario more competitive overall;
  • Improve investor protection—investigate security solutions;

In January 2021, the CMMT released a final report that specified 74 policy recommendations for modernizing capital markets in Ontario. The Capital Markets Act implemented a number of these recommendations.

Illustration Capital Market Act

What is the Capital Markets Act?

The Capital Markets Act was released as a draft legislation in 2021. If ratified, it will replace Ontario’s Securities Act and Commodity Futures Act as the primary capital market regulation document. The act incorporates key recommendations from the Capital Markets Modernization Taskforce. They are including a reduction of the minimum consultation period for rule-making from 90 days to 60 days and consolidation of decision-making authority in a Chief Regulator subject to regular judicial review rather than a board of directors. These changes, among others, will streamline the decision-making process for rulemaking and exemptions while creating greater flexibility for entities in new and diverse capital markets.

Regulatory Principles Embodied in the CMA (Consultation Commentary, p.43) :

  • Adoption of recognized standards or international best practices;
  • Decrease compliance burden for small businesses;
  • Accessibility of digital services to stakeholders;
  • Recognition of regulated entities that demonstrate excellent compliance;
  • Reduction of unnecessary and redundant reporting;
  • User-friendliness of regulatory instruments: clear communication, reasonable response deadlines, and single point of contact;

The main focus of the CMA is the streamlining of the regulatory and compliance process. A flexible regulatory structure can more easily accommodate sudden market fluctuations. With the world in a state of flux, this flexibility may become essential to regulators who would like to keep capital flowing into their regional markets.

Illustration Future of capital markets

What does the future hold for these markets?

When the pandemic hit, the impact on capital markets worldwide was immense. The stock market and real estate market are still seeing the ramifications of this global crisis.

One major result of the pandemic is the increased globalization of business and enterprise. According to consulting firm Broadridge, wealth management platforms that adopt a different compliance strategy for each of their geographies often suffer from fragmentary data infrastructure. A financial company’s investment book of record (IBOR) must support functions like data storage, performance analysis, and risk management as well as regulation compliance—tying up your IBOR with a dozen different compliance protocols can compromise both workflow efficiency and security. Eliminating redundancies in your compliance framework forms the backbone of security solutions in today’s global capital markets.

Successful companies are adopting and applying compliance strategies on global markets. The regions they choose to operate in often have regulatory frameworks which, like the CMA, adopt internationally recognized standards or best practices. A broader compliance strategy may be a better security solution than a fragmented collection of regional compliance frameworks. However, overhauling your existing patchwork of IT infrastructure may be a significant pain point for your company.

Illustration IT solution

IT solutions for today’s capital markets

Are you a financial company looking to streamline your IBOR ? Or a small business searching for assistance with secure solutions for new compliance regulations ? Whether you are one of the other, it doesn’t matter as building an IT infrastructure that can support your endeavors is the first step. Hypertec offers secure IT solutions for financial service providers who are investing in global compliance strategies—not to mention related new technologies in artificial intelligence and cloud computing.

With the knowledge and expertise gleaned from decades of IT infrastructure provision for financial service providers, Hypertec can reduce the headaches of reworking your compliance and security strategies for new capital market legislation.

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This post is also available in: FR

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