OSC tries to block release of report on brokerage watchdog



Tuesday, July 20, 2004

The Ontario Securities Commission is going to court in an attempt to block the release of a report it wrote that is critical of the Investment Dealers Association of Canada, the trade group that polices the brokerage industry.

The commission conducted an audit of the IDA's enforcement division four years ago. While the audit has never been made public, problems uncovered led to a number of high-level changes at the IDA, including the departure of two senior staff members responsible for enforcement and the creation of a new database to better monitor industry problems.

The province's Information and Privacy Commissioner has ordered the OSC to make the report public in response to a request from an anonymous individual.

The OSC is now seeking a judicial review in Ontario's Divisional Court of the commissioner's decision. A date has yet to be set.

In its submission to the Privacy Commissioner, the OSC argues that its staff would not feel free to speak their minds if their recommendations were subjected to public scrutiny. The IDA endorses this position, arguing that disclosing the report would make it reluctant to co-operate with the OSC.

"If that is true, the OSC is openly confessing an inability to endure public scrutiny," counters a submission from the individual seeking a copy of the audit.

IDA president Joe Oliver was unhappy with a December report and accused the OSC of going well beyond its mandate.
Investor advocates say OSC fears scrutiny

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

The case raises questions about whose interests the OSC is attempting to protect. The regulator says it has a mandate to protect investors and to maintain public confidence in securities markets. But investor advocates say in this instance, the OSC appears more concerned about protecting the IDA.

"The public should have a right to know," said Robert Kyle, executive director of the Small Investor Protection Association. "We have been screaming for years about the enforcement procedures of the IDA . . . Yet they're going to do everything they possibly can to keep this quiet."

OSC spokesman Eric Pelletier said yesterday that the commission agreed to keep the audit confidential to avoid an adversarial review with the IDA. He said he does not know the identity of the person who sought the report through a Freedom of Information Act request.

"We want to have a review that results in the most thorough and most qualitative information possible," he said. "Obviously, if any issues come up that are sufficiently serious, we would take whatever action is necessary to address those issues, including making them public."

David Goodis, a senior adjudicator with the Privacy Commissioner, said submissions made by the OSC and IDA lack credibility. "The IDA is bound to co-operate and be fully frank with the OSC in its reviews," he said, in ordering the audit released. He notes that the OSC oversees the operations of the IDA, a self-regulatory organization for the brokerage industry.

The appeal comes at a time when questions are being raised about the IDA's effectiveness in policing the brokerage industry. A task force set up by the OSC said in December that the IDA should no longer carry out the dual roles of lobby group and regulator for the brokerage industry. The task force said it heard "serious concerns" that the OSC's oversight of the IDA's regulatory activities was not effective and that U.S. regulators provided far superior oversight of their self-regulatory agencies.

IDA president Joseph Oliver was unhappy with the report and accused the task force of going well beyond its mandate.

"This is a committee whose mandate was to reduce red tape and make the markets more competitive," he said at the time. "That subject is really unrelated to their mandate."

Following the 25-page audit done by the OSC in 2000 outlining the IDA's weak compliance efforts, the IDA took steps to beef up its enforcement. It hired a new senior vice-president of member regulation, former Alberta deputy justice minister Paul Bourque, and a new vice-president of enforcement.