The Trends and Shifts Impacting Canada’s Future Economy

---

After nine years at the OSC and more than four years as Chair, Ms. Jensen resigned her role in April 2020.

Please Note: This interview was conducted before the economic impact of the current global pandemic was realized. Given the current COVID-19 crisis, we asked Ms. Jensen to answer the additional following question. The original interview begins below:

---

How are the current COVID-19 crisis and its effects impacting Canada’s future economy?

The COVID-19 pandemic has stunned the entire globe and we’re all looking at the impact it is having, not just on us personally and on the health of our nations, but also on what’s happening in the financial markets. 

The situation continues to develop as we speak. It is one of the biggest economic events in recent history and we can expect to feel its impact for years to come.

Events like the COVID-19 crisis remind us of the importance of regulation in all market conditions. Regulators play an important role in maintaining financial stability, building investor confidence and contributing to economic recovery – we always have, and we always will. 

“Events like the COVID-19 crisis remind us of the importance of regulation in all market conditions. Regulators play an important role in maintaining financial stability, building investor confidence and contributing to economic recovery.”

In response to the current environment, we have paused to consider the social changes required in delivering on our mandate. We are providing relief for companies while keeping investors in mind. We know many Canadians are hurting and will need support now and over the longer term. 

We are adapting how we work, how we communicate and how we collaborate. We are working alongside our government and other regulatory partners as we oversee our capital markets to protect investors and the integrity of our markets,

Without market confidence, we know investors won’t participate in our markets, those markets won’t perform as they should, and our economy will falter. So, during tough times like the one we are currently facing, we must find ways to keep our capital markets open, to enforce the rules so that markets remain fair, and ensure timely information flows to investors so that they can keep making informed decisions for themselves and for the future.

---

Original Interview:

What is the current state of financial markets, what trends are shaping them, and what do you expect for the future? 

The financial markets are undergoing a huge amount of change. First, there is a lot of global uncertainty around trade policies, and we are seeing tensions rising around the world. This creates a reduction in global commitments to sales and to trade, because people generally sit on the sidelines when they see this kind of turmoil. This is happening both globally and within Canada. We have a strong resource culture in our capital markets, and we are witnessing a big shift away from basic resources towards the new digital economy. So, investors are moving with that shift as well.

Another trend is that people are borrowing a significant amount more because capital is so cheap. There are concerns about that, because people are taking on more debt.

“We are witnessing a big shift away from basic resources towards the new digital economy. So, investors are moving with that shift as well.”

There has also been a huge shift in demographics. Baby boomers are moving toward retirement, so there will be a large wealth transfer in the coming years. We are also seeing, as everyone in the world is seeing, rapid technology growth. That is having a profound effect not only on how we live but also on how we invest, with more of our activities and consumption moving online. 

This digitization is also impacting how people want to engage with the financial industry. They want apps, they want to talk to people and make decisions 24/7, and they want immediate results. This has been a real challenge for financial service companies. Gone is the time where everyone is using one senior exchange. There are now different platforms for different investors, and there has been a real transition towards a data driven economy. The pace of change has been incredible. This is true not only for investors and exchanges, but for intermediaries like brokers as well. This is a very important change for regulators, and we must adapt to this.

“Any economy that is not looking at these trends and trying to disrupt its own behaviour is going to face problems with prosperity in the future.”

We have also noticed the emergence of different investing patterns. Many people want to invest for their future while making a difference in their present. They are investing in companies that have good governance, that are worried about climate change, and that are socially responsible. These are trends we have witnessed for about 20 years, but they are really impacting decisions today. The Canadian market is also standing out because of the potential impact of investment in cannabis. This has brought a lot of capital into Canada and is a trend we continue to watch.

Any economy that is not looking at these trends and trying to disrupt its own behaviour is going to face problems with prosperity in the future. But I am generally optimistic about the Canadian market. I have lived in many places in the world, and I have to say that this is the best country in the world. 

---

How must regulators adapt to provide a balance between maintaining confidence in capital markets and allowing for innovation?

Capital markets are very important to any economy, and regulators have the responsibility to focus on these markets and make sure there is a fair and balanced approach to both growth and innovation. Ultimately, investors need to be protected and businesses have to compete fairly. We need to allow new companies to grow and existing companies to change, but this must be balanced by confidence in the market. No matter what kind of companies a market has and what kind of opportunities exist, if individual investors do not feel the market is fair, they won’t have confidence and they will not invest. Regulators must strive to maintain confidence in the market while allowing companies to innovate, and that is tough to do.

While there is a role for government in finding this balance, it becomes complicated because of the regulatory structure we have in Canada. Regulators need to change how they look at the marketplace. We must think about our rules and regulations, and how they have developed based on existing business models. We are seeing an increasing amount of innovation, and to deal with this we must be more open about how we do things and how our rules impact the marketplace. We need to collect more data and interact in real time with other regulators, because many businesses are straddling four or five different regulators, which is a burden. This is something we are not only seeing within our country but also globally.

“Regulators need to change how they look at the marketplace. We must think about our rules and regulations, and how they have developed based on existing business models.”

Almost all large financial institutions are global institutions, and the idea that they have to deal with 115 different regulatory processes is quite ridiculous. Regulators must find a way to work with our global counterparts to oversee what happens in our market, while allowing companies’ home regulators to do their job.

It is also the role of regulators to make sure as many Canadians as possible can participate in, and benefit from, the investment markets. In the last 20 years, we have seen fewer people who have pension plans, and more who have started investing for themselves. We need to ensure that all Canadians have access to good advice and to products that allow them to save for their future while maintaining confidence in the marketplace.

---

What must be done in Canada in terms of our companies’ diversity, inclusion, and environmental, social and governance (ESG) practices?

We look at this in the context of good corporate governance. We believe there should be diverse opinions and diverse people on companies’ boards, so that businesses can make better decisions and not be blind to certain issues. We are finding that on many boards everyone has the same point of view and they come from the same background. This has resulted in excellent companies who have missed big issues, simply because they all thought the same way. That is why we think diversity on a board – especially gender diversity – is very important.

When it comes to women in business, if women are not included, the world is only looking at half of the available talent. If a business discounts 50% of the population, its potential talent pool is halved, and it will miss out. 

Women have a different leadership style in some cases. One of the challenges we have seen with businesses is that there is often only one acknowledged leadership style: top-down, autocratic leadership. That does not motivate people today. So, we need new styles of leadership, and different voices at the heads of companies so that we do not miss important signals. 

“We have a good dialogue on diversity in business in Canada. But this issue requires both men and women to understand that we must promote a greater diversity of people to leadership positions.”

We have a good dialogue on diversity in business in Canada. But this issue requires both men and women to understand that we must promote a greater diversity of people to leadership positions. Companies should look for people who have a different point of view and different experiences. For every leadership position there should be both men and women on the shortlist.

Our government has made ESG an important topic in Canada, and we are seeing plenty of discussion on this issue. However, we often see boards that are focused on their quarterly output or yearly share price, without looking at the major risks going forward. When you talk about climate issues, you have to be thinking 20 or 30 years out. Still, this is something that all our big businesses have focused on. Right now, Canada’s large companies need to bring their ESG reports and their annual reports together to truly model that these two things are converging.

---

What are the most promising or interesting sectors of the financial services industry right now? 

Disruption in financial services is very promising, and that is a global trend. Most of the larger financial firms are trying to innovate with new technology, but it is hard to do that from within. So, what we are seeing is smaller fintech companies being purchased by larger financial incumbents. This is an area where I think investors are going to win. The only problem is that some financial services businesses think that if you buy a digital business, then you suddenly become digital. This is not the way it works—you actually have to change your entire structure. Still, more businesses are moving to online platforms and maintaining relationships with clients. You need to have all the digital touchpoints, but there still needs to be a personal touch. Those will be the businesses that survive in the future.

“More businesses are moving to online platforms and maintaining relationships with clients. You need to have all the digital touchpoints, but there still needs to be a personal touch. Those will be the businesses that survive in the future.”

Cryptocurrency and crypto assets are also creating a lot of changes to the market. It is an area where we see a lot of promise but also one where we see a lot of problems in getting these businesses to scale, so it is hard to know where that is going. I think that over time, we will see that the global phenomenon of cryptocurrency is going to change to blockchain assets, which will start delivering in a scalable way. That will be very interesting to see. There is also a global trend for more open data, which is important not only for digital innovation but to enable governments of all levels to use data in a more effective way. 

---

How should we spur greater investment in innovation in Canada?

I do not think there is enough investment in innovation. However, I am also hesitant to say that governments should be the ones to invest, because they should not be picking the winners and losers. One of the issues we must resolve is leveraging business procurement to support the growth and scaling of Canadian innovation. Procurement is often so tight and stifling that our innovative businesses cannot participate in procurement, and this is a problem we need to address.

“Procurement is often so tight and stifling that our innovative businesses cannot participate in procurement, and this is a problem we need to address.”

One way to address this is for government and Canadian businesses to take on a little more risk. Not necessarily through investing in new innovations, but by using their services. 

We have excellent resources here in Canada and an opportunity to support innovation by using these as the basic materials for building a digital economy. Through a focus on sustainable resource extraction Canada’s population is pushing us in this direction. We have some excellent educational institutions that have wonderful innovation hubs that are trying to build new businesses around this opportunity and get private capital flowing into them. There are also several important groups from Silicon Valley that are looking at Canada for talent and are building hubs here. So, we are moving towards innovation around Canada’s economic strengths, but we still need the resources that we have to build out new digital products.