Investors Scrutinizing the Regulators

Home Page

InvestorVoice.CA


Securities Regulation In CanadA


Fox Guarding the Hen House

   

 

Document dispute leads to court fight

Doug Watt

(June 3, 2004) Two Ontario government commissions are at odds over the public release of a controversial report on operations at the IDA. The province's Information and Privacy Commission has ordered the Ontario

Securities Commission (OSC) to make the document public, but the OSC has appealed and the matter is now headed for the courts.

At issue is a 25-page audit conducted by the OSC and delivered to the IDA in 2000. Never released, it's been described as a critical performance appraisal of the brokerage industry association, containing 18 specific recommendations regarding the structure and governance of the IDA, focusing on its enforcement division.

Following the audit, the IDA hired an outside firm to conduct an independent review, culminating in a number of high-level changes, including the departure of senior IDA staffers Greg Clarke, vice-president of member regulation, and enforcement director Fred Maefs. 

A number of requests have been submitted under the Freedom of Information Act to release the audit, but the OSC has refused to comply, arguing that its staff would not feel comfortable in making "frank and candid" assessments if their recommendations were subject to public scrutiny.

"If that is true, the OSC is openly confessing an inability to endure public scrutiny," one unnamed appellant wrote in a submission to the privacy commission. "Why would that be?"

"I submit that the repeated refusal to release the audit flies directly in the face of professional priorities and in fact erodes public confidence in Ontario's investment industry," the submission continues.

But the OSC defends its right to keep the audit confidential. "It's actually common practice for some regulators not to make public audits of self-regulatory organizations (SROs)," says OSC spokesperson Eric Pelletier. "We think it would affect the quality of the audit and could have a chilling effect on the depth of the information that is shared between the regulator and the SRO. The important issue here is that the regulator follows through with any changes that are required as an outcome of the audit."

In his initial report on the case, assistant commissioner Tom Mitchinson rejected the OSC's arguments, stating, "I am not persuaded that any of the audit report's content would reveal information received from the IDA."

After the first OSC appeal, the privacy commission produced a second report, authored by senior adjudicator David Goodis, who reached the same conclusion.

"In essence, the position of the OSC and the IDA is that if the record is disclosed, the IDA will be reluctant to co-operate with the OSC in its reviews. This submission lacks credibility," Goodis wrote.

Goodis ordered the OSC to disclose the record to the appellant last November. However, the OSC is exercising its right to seek a judicial review of the decision in Ontario's Divisional Court, Pelletier says.

No date for the appeal has been set, says privacy commission communications coordinator Bob Spence, adding it could be a "number of months" before the case is heard.

The odds appear to be stacked against the OSC. In the majority of cases over the last several years, the privacy commission's orders have been upheld by the courts, according to the commission's Web site.

Given that the audit is several years old, it's reasonable to ask how releasing it now would serve the public interest. Investor advocates say it's a matter of principle.

"Transparency better late than never," says Jim Roache, who also submitted a request for the audit. "It can be reasonably assumed that many of the findings and recommendations contained in the report are as valid today as they were then and that action in full public view is still required to improve IDA performance to anything approaching levels acceptable to investors."

Robert Kyle, executive director at the Small Investor Protection Association, suggests the OSC, which demands transparency and accountability for those it regulates, should lead by example.

"Investors as well as brokers have an absolute right to know if they have been subjected to improper or negligent regulation," Kyle says. "After all, we recognize that regulators are not perfect and with immunity, what have they got to worry about?"