Investors Scrutinizing the Regulators

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Fox Guarding the Hen House


Hearings set that could lead to securities system reform



Monday, August 2, 2004 - Page B1

The Ontario government will hold long-awaited public hearings this month on a key report that makes several recommendations to reform the securities regulatory system.

The report by the Five Year Review Committee, headed by corporate lawyer Purdy Crawford, outlines shortcomings in the self-regulatory organizations that supervise Canada's securities industry and with the accountability of the country's senior regulator, the Ontario Securities Commission.

Queen's Park is at least a year behind schedule in holding hearings on the report, which was tabled in the legislature in May, 2003. Under former Premier Ernie Eves, the government had planned to set up a committee of the legislature to review the recommendations and report back by the fall of 2003.

The hearings are now set to begin midmonth before the standing committee on finance and economic affairs, and to extend over four days.

The OSC will be the focus of much of the hearings, which will examine recommendations made by the government-appointed Five Year Review Committee.

But even before the hearings begin, the regulator is coming under criticism for not publicly releasing a separate report it commissioned. Last year, the OSC quietly appointed a three-man committee headed by Coulter Osborne, the province's integrity commissioner, to examine whether the OSC should be radically overhauled by separating its potentially conflicting roles as both prosecutor and adjudicator.

The committee also includes David Mullan, a retired university law professor and Toronto's newly appointed integrity commissioner, and Bryan Finlay, a lawyer at Weir Foulds LLP in Toronto.

Mr. Mullan said in an interview that the committee submitted the report to the OSC in February. "We assumed at some point it would be released publicly," he said, but would not say what the committee recommended.

OSC spokeswoman Wendy Dey said the commission plans to publicly release the Osborne report the same day OSC chairman David Brown appears as a witness at the hearings. "I think it's totally appropriate that we give the report to [the standing committee], and that it becomes public that day, and not before this group that's been asked to study it gets a chance to study it first," she said.

Securities lawyer Philip Anisman said the commission should have released the report when it received it in the interests of having a public debate on a matter of huge importance to investors. "Maintaining secrecy of a report of that nature serves no public interest."

By waiting until the hearings begin before releasing the report, the OSC is giving the public little opportunity to digest it, he said. By doing so, the commission is being "less open than it should be."

OSC said shortchanging public by withholding Osborne report



Lawyer Phillip Anisman says the Ontario Securities Commission should have released the Osborne report when it received it in the interests of having public debate on a matter of huge importance to investors.

The government will begin running advertisements in major newspapers tomorrow, inviting members of the public to speak at the hearings scheduled for Aug. 18, 19, 23 and 24, or send in written submissions.

Investor advocate Robert Kyle wrote a letter to the standing committee expressing his concerns that the OSC, an agency of the government, had not released the Osborne report.

The topics to be discussed at the hearings are "of great concern to the investing public," he said. The government of Ontario has publicly committed to transparency and disclosure. The immediate release of this report would demonstrate that commitment."

Mr. Kyle said he wrote to the standing committee because he had been told by OSC officials that it would be up to Queen's Park to release the Osborne report.

In a letter to Mr. Kyle last week, Pat Hoy, head of the standing committee, said it does not have a copy of the Osborne report.

As part of a motion passed in the Legislature on June 29, the standing committee will review the structure of the OSC's adjudicative tribunal and examine whether Canada's 13 provincial and territorial regulators should be replaced with a single agency.

Both of these recommendations were contained in the Crawford report, which said the government should review whether to split the OSC's dual roles. The OSC both prosecutes securities violators in Ontario and presides over disciplinary hearings, acting in both a policing and judicial role. The Crawford report said this can give rise to "perceptions of potential for conflict or abuse."

The report also recommends that the government step up its oversight of the OSC. The Ontario legislature's standing committee on government agencies has not reviewed the OSC since 1988, according to a review done by the Fraser Institute.

Self-regulatory agencies such as the Investment Dealers Association of Canada also came under criticism. The Crawford report says the IDA should consider having more individuals outside the industry on its disciplinary panels. The panels typically consist of two industry members and a retired judge, raising concerns about their perceived independence.

The government set up the committee headed by Mr. Crawford in 2000. The standing committee must report back to the legislature by Oct. 18.

The Ontario Securities Act mandates that the government review the OSC every five years. The government will no sooner complete its review of the Crawford report before having to appoint the next five-year review committee in December.

"Would we have wished it all to have happened earlier?" asked Ms. Dey of the OSC. "Probably, but this is the way it ended up."