The Ontario Securities Commission plans to move faster and crack down harder in response to new developments in the financial sector such as AI and decentralized finance. To do so, the securities regulator will build on its experience developing groundbreaking rules to govern cryptocurrency.

Lessons from crypto: The regulator released its strategic plan for the next six years on Friday. In the document, the OSC said it learned a lot from its response to the rise in popularity of crypto trading. It was one of the Canadian securities regulators that launched a crackdown on crypto-trading platforms in 2021, informing them they had two choices: start the process of registering as securities dealers or exit the country.

The crackdown led to a unique regulatory regime that professionalized the sector. “We know from this experience that we need to continue in a proactive manner to identify risks and be agile in our response,” the strategic plan reads. The plan cites technological innovations, AI and decentralized finance—crypto-based applications that aim to recreate elements of the traditional finance system such as lending and exchanges—as areas the OSC is watching. At a launch event for the plan in downtown Toronto Friday, OSC board chair Kevan Cowan said the regulator will create a new group dedicated to getting ahead of such emerging issues. 

OSC CEO Grant Vingoe said the regulator is bringing in outside expertise to study how to respond to AI. Ultimately, however, he said the issue requires a “cohesive, whole-of-government approach.”

Getting even tougher: Ontario’s auditor general and investor-protection advocates have criticized the OSC over its enforcement efforts, saying it’s too slow to act and has a poor record of collecting the fines it levies against bad actors. In the plan released Friday, the OSC said it plans to “seek out new tools and authority to address wrongdoing.” The regulator wants to collaborate more with law enforcement, according to the plan.

I’ve got my eye on you: Other areas of concern the OSC noted include the scrutiny regulators are under as they develop standards related to environmental, social and governance factors; the rise of do-it-yourself investors making decisions without the guidance of an adviser; and the growth of private financing. “While private markets are an important source of financing for firms, the lack of transparency and lighter regulatory  touch in private markets provide less investor protection and add to the challenge of monitoring risks,” the plan reads.

Signs of success: The OSC hopes to encourage innovation through regulatory certainty, improve its reputation as an effective enforcer and improve confidence in Canadian capital markets, among other goals. “We believe the time is right to put to work the many lessons we have learned over the past few eventful years,” the plan reads.

Not just a bad cop: At the launch event, Cowan said some might be surprised the regulator has updated its vision to include a goal of making Ontario’s capital markets inviting and thriving, as well as secure. While the OSC is “not an economic development agency,” the regulator recognizes that its actions contribute to the health of the economy, he said.