By JANET McFARLAND
Thursday, Aug 19, 2004
The Ontario Securities Commission should
split off its key judicial role by creating a separate tribunal to hear
cases involving securities violations, an independent report commissioned
by the OSC has concluded.
The committee, headed by Ontario's
Integrity Commissioner, Coulter
Osborne, concluded that the OSC appears to
have a conflict of interest by prosecuting and adjudicating securities
cases, and said the commission's reputation is suffering as a result.
Mr. Osborne's report says the evidence is
“persuasive, indeed overwhelming” in support of dividing the commission's
roles so that it no longer plays the combined roles of policing,
prosecuting and judging securities violations.
“We are satisfied that the nature of the
apprehension of bias has become sufficiently acute as to not only
overwhelm the commission's adjudicative process, but also the integrity of
the commission as a whole among the many constituencies we interviewed,”
the Osborne committee concluded.
The OSC last year commissioned Mr.
Osborne and two other committee members — retired law professor David
Mullan and lawyer Bryan Finlay — to review the issue of dividing its roles
following the release of a Five Year Review Committee report on securities
regulation, which recommended the province study the idea.
The OSC was granted new rights last year
to impose fines on violators and to make them “disgorge” ill-gotten
profits, raising the question of whether this growing power should require
a more formal divide between the OSC's judicial and investigative
The Osborne report, completed in March,
was released Wednesday by OSC chairman David Brown.
Mr. Brown was appearing before the
province's finance committee, which opened hearings into the
recommendations of the Five Year Review Committee.
At the same time, Mr. Brown also released
two recently completed legal opinions prepared by Toronto law firms that
support the legality and appropriateness of the commission's existing
structure. He said the decision to seek the additional legal reviews
contributed to the delay in releasing the Osborne report.
Mr. Brown said OSC commissioners who help
develop public policy make better adjudicators, because they have more
insight into the public interest goals of securities regulation. As well,
he said the dual roles played by commissioners — who function as the OSC's
board of directors in addition to their judicial roles — makes the job
more attractive to a larger pool of candidates.
Liberal MPP Deb Matthews told Mr. Brown
that it was confusing that he spoke to the finance committee about his
concerns with the concept of dividing the roles while simultaneously
releasing a report that overwhelmingly favours the division.
As well, Ms. Matthews said it was odd
that he also released two legal opinions that appear to support making no
change to the commission's structure.
“What it looks like to me is [Mr.
Osborne] came back, you didn't like the report, and you went and found
another opinion that was supportive of keeping it within the OSC,” she
Mr. Brown, however, said the legal
opinions were commissioned to address narrow and specific questions that
had not been dealt with in the Osborne report.
He said he is personally of “two minds”
about the proposal, and sees the arguments for both sides. He told
reporters after the hearing that his primary concern with creating a
separate tribunal is that it would be extremely difficult to find
qualified people to act as part-time judges.
But the Osborne report dismisses that
concern, even saying many of the more than 60 professionals it consulted
in preparing its report would be excellent candidates.
The Osborne committee recommended the new
tribunal should have no more than 12 members, most of whom would work
part-time, except for a full-time chairman who should have legal and trial
expertise, such as a retired judge. It also said the tribunal should have
offices independent from the OSC. Appeals of tribunal decisions would be
heard by the divisional court.
The committee proposed that the tribunal
would only hear cases in which sanctions or penalties could be applied
against a company or individual, while the OSC would continue to conduct
its own hearings on so-called “transaction” matters.
These include applications to the OSC for
rulings on matters such as poison pills, takeover bids and exemption
Meanwhile Wednesday, Ontario Management
Board chairman Gerry Phillips, who is the provincial minister responsible
for the OSC, appeared before the finance committee and said his government
has not made up its mind about whether to divide the OSC's roles.
“There are some fairly good arguments in
favour of separating some of the adjudicative functions from the
securities commission,” he said.
Mr. Phillips, however, urged the
committee to support Ontario's proposal to create a single securities
regulator for Canada.
While committee members all expressed
support for a single securities regulatory system, MPP Michael Prue of the
NDP said there is nothing the Ontario finance committee can do to make it
“I don't think we should be wasting too
much time on this, except to say that it's important,” he cautioned.