Investors Scrutinizing the Regulators

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Fox Guarding the Hen House


Ontario pushes single regulator idea

Finance official says Ottawa would let provinces run regulator


Wednesday, August 18, 2004

By James Langton

Gerry Phillips, chairman of Ontario’s Management Board Secretariat, has repeated his call for the creation of a single securities regulator.

In late June, Phillips, who is acting minister with responsibility for the Ontario Securities Commission, released a proposal for a creating a provincially led single regulator. On Wednesday, he reiterated that approach, saying that there is a fair bit of momentum for this in other provinces. He also suggested that there’s some feeling that a single regulator is “inevitable”, it’s just a question of when we get there.

In prepared remarks to the legislative committee considering the Five Year Review Committee, Phillips criticized other initiatives such as a provincial passport model, and the Uniform Securities Law project as inadequate. Notwithstanding the momentum for a single regulator, Phillips noted that there’s a proposed memorandum of understanding being circulated among the provinces for implementing the passport model. He submitted the MOU to the committee for its consideration.

As for the other big issue up for consideration at the hearings, Phillips declined to give a definitive opinion on whether the OSC’s adjudicative function should be split out. This issue was raised in the Five Year committee’s report, and this afternoon the OSC is expected to release an independent report it commissioned to study the issue.

Phillips said that he received a copy of that report, carried out by a committee chaired by Ontario’s integrity commissioner Coulter Osborne, just last week. The OSC received the report in the spring.

Phillips said that a decision on that issue hasn’t been made, but that there are some “fairly good arguments” in favour of splitting out some of the OSC’s adjudicative functions. But, he suggested that it would wait for the committee’s response to the report and public reaction.

In response to questions from the other committee members, Phillips noted that the OSC’s proposed merger with the Financial Services Commission of Ontario is off the table as it focuses on getting to a single securities regulator.

He also called for the committee to weigh in on issues such as new enforcement powers for the OSC, fund governance, secondary market civil liability, enhancing shareholder rights, raising capital and improving investor protection, among other things.

Later Wednesday, an Ontario finance ministry official suggested the provinces should create a single national regulator and that the federal government doesn’t really want the job.

Speaking to the committee, Phil Howell, assistant deputy minister, Office of Economic Policy, suggested Ottawa doesn’t really want to take jurisdiction for securities regulation. He noted that the federal government’s main interest in a national regulator is that the current system is unnecessarily impeding economic growth by being too costly and too duplicative.

He said that his discussions with federal officials lead him to believe that the feds would be satisfied with a provincially led single regulator that made securities regulation more efficient and presented less of a barrier to economic growth.

Howell said that while the Wise Persons’ Committee sought three legal opinions that suggested that the feds could claim jurisdiction for securities regulation, Ottawa isn’t really seeking that responsibility. He suggested that while the feds are interested in the efficiency gains that could be had with a single regulator, they are “ambivalent about its design”.

Instead, he said, the provinces should tackle the problem, a solution which would preserve their turf, too. He said that Ontario must continue making the case for a national regulator because it is, “so much in our interest”.

Foreshadowing the conclusion of the Osborne report (regarding the possibility of splitting out the Ontario Securities Commission’s adjudicative function) to be released Wednesday afternoon, Howell said the current structure is definitely legally supported, the question is whether the perception of conflict is compelling enough to motivate restructuring of the commission. He said that there is clearly a public perception of conflict in the OSC having multiple roles as investigator, prosecutor and judge.

He also suggested that the splitting of the commission’s adjudicative function might work best on a national level, under the single regulator it envisions. A national tribunal would probably have enough work to justify the hassle of splitting off the adjudicative role, he argued.

That said, he pointed out that this issue will have big implications not just for securities industry tribunals, but for all tribunals. Howell also noted that the courts have recognized the value of the expertise of administrative tribunals.