By James Langton
The Ontario government has finally
created a legislative committee and set hearings to examine
recommendations made in the five-year review committee’s final report on
the Ontario Securities Act. Critical issues are on the line, which means
there could be fireworks when the debate gets underway in a few weeks.
The standing committee on finance and
economic affairs — headed by two provincial Liberals, chairman Pat Hoy and
vice chairman John Wilkinson — is slated to hold hearings Aug. 18, 19, 23
and 24 and report its conclusions to the Ontario Legislature by Oct. 18.
Apart from reviewing the reform
recommendations of the five-year review committee, Hoy and Wilkinson will
also consider matters such as whether the Ontario Securities Commission’s
adjudicative structure should be reformed, as well as contemplate the
possibility of a single regulator in Canada.
On the single-regulator issue, the
five-year committee, chaired by Purdy Crawford, called for Ontario’s
finance minister to take a leadership role in establishing one regulator
for the capital markets.
While the recommendation was directed at
a previous administration, the current Ontario government has already
initiated such an effort, proposing a plan that would see the provinces
agree to adopt a “passport model” in the next few years, on the condition
that Canada then move to a single regulator within two to four years.
The single regulator issue is a
persistent concern for the market, and Ontario has no ability to impose a
solution, which can only come from a federal edict or an overall
Since Ontario has taken a direction on
the question, the more significant work of the committee may be on things
it actually has the power to affect, such as the structure of the OSC and
the general function of regulation in the province.
The OSC’s structure was raised by the
Crawford committee in its final report, although it didn’t recommend a
specific alternative. However, it did suggest that its multiple roles as
investigator, prosecutor and adjudicator should be studied.
The OSC took up that recommendation by
striking a three-person panel — headed by Ontario Integrity Commissioner
Osborne, along with Queen’s University professor (and Toronto’s
new integrity commissioner) David Mullan and Bryan Finlay, a lawyer at
The committee canvassed opinion in the
industry last summer and fall, and reported its findings to the OSC this
past spring. It heard recommendations for everything from leaving the
current system unchanged to moving to the U.S. model of external
adjudicators, to possibly even hiving off the commission’s enforcement
The committee’s conclusions. however,
have remained under wraps. The OSC promised to release the report to the
public. It hasn’t yet done so, although it now says that it will present
the report to the legislative committee when it testifies this summer.
“Our plan is to have our chairman, David Brown, table the report, along
with other legal opinions, at the start of the committee hearings,” says
Wendy Dey, the OSC’s director of communications.
“We have always planned to make the
report public and have said that when the legislative committee has been
named, it would be appropriate that its members see the report first
before we release it,” she says.
The timing isn’t soon enough for some who
hope to testify before the committee. One veteran securities industry
lawyer says that releasing the report at the start of a four-day hearing
doesn’t really give others time to digest it and offer meaningful
"It does not make sense to expect
the public to comment on a paper which is not before them or may be
placed before them at those meetings."
Industry gadfly Robert Kyle has asked the
clerk of the committee to make the report public sooner. “The Osborne
Report should be released immediately,” Kyle says in his letter to the
“As the committee has been scheduled to
meet for four days in August, and the report’s contents are a subject of
that meeting, it does not make sense to expect the public to comment on a
paper which is not before them or may be placed before them at those
meetings. The investing public deserves better disclosure,” he writes.
Dey argues that the Osborne report is not
a separate item under consideration by the committee, that it is simply
part of the commission’s response to the Crawford committee, and so it
should be tabled along with its own testimony. That may be the case but
the OSC’s insistence, particularly when the hearings themselves are
already taking place with little fanfare in the dead of summer, leaves the
process open to accusations of insufficient transparency.
The committee clerk indicates that the
committee doesn’t yet have the Osborne report, nor has the subcommittee
asked him to obtain a copy. The subcommittee has already met once to
discuss the hearings and the issue is on the agenda for upcoming
subcommittee meetings, possibly before the end of July (after Investment
Executive’s deadline), so the matter may yet be settled before the first
While the structure of the commission is
a critical issue, it’s hardly the only one that came out of the Crawford
report. Some of its 95 recommendations — including tougher penalties for
securities law violators and greater enforcement powers for the OSC — have
already been adopted by the legislature.
Other issues it raised concern the
Investment Dealers Association of Canada, including whether
improvements can be made to the composition of its disciplinary panels and
the membership of its board of directors to lessen perceptions of conflict
of interest. It also asked the OSC to consider whether the IDA should be
given more powers, including: expanded jurisdiction, statutory immunity,
the ability to compel witnesses, the ability to file decisions as orders
of the court; and the power to seek monitors for firms that are in chronic
The Crawford committee also called for
streamlining of the Securities Act, speeding up the rule-making process,
better oversight and accountability of the commission, fewer OSC projects,
an expanded civil liability regime, and that the commission consider
ordering restitution in certain cases.
It also made recommendations regarding
the contentious issue of fund governance, calling for independent boards
to oversee mutual funds, with specific responsibilities, including
overseeing fees and approving material contracts. It recommended that the
boards have the power to terminate managers, powers that go far beyond the
regulators’ current plans for fund governance.
So many important issues means there
should be plenty of interested participants queuing up to testify, despite
the cottage-weather timing. Apart from the usual industry suspects that
can be expected to testify, Kyle is trying to line up a strong contingent
of speakers that will represent investors’ interests. IE