Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House


August 2004



Let the sun shine on regulators


Securities regulators often invoke U.S. Supreme Court Justice Louis Brandeis' quip that "sunlight is the best disinfectant" when calling  for improved industry disclosure - yet they fail to live up to the motto.  When it comes to their own houses, regulators seem to prefer to sit in darkness.

The point was driven home when the Globe and Mail recently reported that the Ontario Securities Commission is going to court to block the release of its 2000 audit of the Investment Dealers Association of Canada.  The report was ordered released by the province's privacy commissioner last year.

The regulator claims that if its critiques of the IDA were made public, it would be reluctant to criticize the self-regulator, and the IDA would be reluctant to co-operate with audits.  How is this supposed to inspire public confidence in the capital markets?

The same Orwellian approach to disclosure informs the commission's  handling of the Osborne report.  This report was quietly commissioned in response to the Crawford committee's recommendation that the OSC consider whether its current structure should be reformed, perhaps separating the adjudicative function.  The committee discreetly consulted with the Street on the issue.  Public input wasn't sought. And the inquiry's existence was revealed only when Investment Executive caught wind of it.

The committee delivered its conclusions back in April, and the OSC promised to release its report publicly.  The commission now plans to release the report at its appearance before a legislative committee convening in mid-August to hear submissions on the Crawford committee's recommendations.  This gives others testifying before the committee three or four days at most to consider the report, a disclosure strategy that seems contrived to hamper informed comment and stifle public debate.

This might not be so bad if the commission was just another supplicant lobbying legislators or private pork, but this is a quasi -governmental organization charged with defending the public interest, although it is funded by issuers and market players.  The problem is there's not enough transparency and accountability among regulators.  It's time legislators let in the sun.