By James Langton
The Ontario Securities Commission has
finally made public the report that recommends the OSC split off its
The report on the structure of the OSC,
which the OSC commissioned from a committee headed by Ontario's Integrity
Osborne, examines the structure of the commission and
the potential for the perception of bias and the possibility that such a
perception would erode the credibility of the commission.
The report was delivered to the OSC on
March 5 and only released now despite many requests to make it public
It concludes that the arguments in favour
of hiving off the adjudicative function are “persuasive, indeed
overwhelming”. It also said that the perception of bias undermines the
adjudicative process and the integrity of the commission.
The report proposes a tribunal that would
have jurisdiction over all disciplinary hearings and reviews of SRO
decisions, with a further right of appeal to the court. The tribunal
should have separate office space, composed of up to 12 people, including
a permanent chairman, with commissioners sitting on the tribunal appointed
by the government. It would have independent funding and be accountable to
the legislature. It also recommended that the OSC establish a committee to
oversee its enforcement arm.
Despite the fact the report advises the
commission to undertake structural changes, it also found no impediment to
the commission continuing to fulfill its adjudicative responsibilities and
functions on a business-as-usual basis. The OSC also tabled a couple of
legal opinions, from Torys LLP and McCarthy Tetrault LLP, defending its
Appearing at the Standing Committee on
Finance and Economic Affairs at the Ontario Legislature on Wednesday, OSC
chairman David Brown said that “we should go for it”, if a better model
for investors can be found. But, without a better model, the current
structure should be left as is.
Brown noted that as head of the
commission he is acutely sensitive to issues of bias. However, he also
noted that he understands the argument for keeping the current structure,
noting that the Osborne report pointed out that the Supreme Court of
Canada has found no complaint about the apprehension of bias where
organizations adopt an integrated regulatory model.
He noted that Chief Justice McLaughlin
has said, "The overlapping of investigative, prosecutorial and
adjudicative functions in a single agency is frequently necessary for [an
administrative agency] to effectively perform its intended role."
Apart from the structure issue, Brown
also recommended that the committee give priority to four initiatives
requiring legislative attention: a regime for statutory civil liability
for secondary market disclosure, and add express prohibitions against
fraud, market manipulation and misrepresentation; statutory amendments to
facilitate inter-jurisdictional delegation of decision-making; allowing
the commission to issue blanket rulings and orders that provide exemptive
relief to market participants; the need to catch up to changes in how
commercial law deals with the transfer and pledging of securities.
"Unlike investors in the United States,
Ontario investors face significant hurdles in suing corporations and their
insiders for false or misleading disclosure," Brown said. "The proposed
civil remedies will both provide investors with a means to seek redress
and encourage compliance by corporations and others with their obligations
of transparency. The prohibitions against fraud, market manipulation and
misrepresentation will enable us as regulators to seek quasi-criminal
sanctions against those who would undertake that activity in our markets.
We'll get tools we need to help protect investors in this province."
Meanwhile, Tom Hockin, president and CEO
of the Investment Funds Institute of Canada, sided with the Osborne
report's call for the OSC to hive off its adjudicative function.
Hockin stressed that his comments reflect
a personal opinion, and not the views of IFIC’s members. Nevertheless,
responding to committee questions, he suggested that the OSC may find it
easier to do its job if it is not saddled with multiple roles; and, the
public may have more confidence in the regulator.
In his prepared remarks, Hockin also
expressed concerns about the OSC’s actions. He said that the OSC should
stick to its knitting – ensuring compliance with its rules – and not stray
into areas such as prescribing service levels at fund dealers. He warned
that the OSC appears to be creeping into a “social engineering” role.