Investors Scrutinizing the Regulators

Home Page


Securities Regulation In CanadA

Fox Guarding the Hen House


OSC advised to create separate tribunal for securities offences



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 functions.

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 said.

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 orders.

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 a reality.

“I don't think we should be wasting too much time on this, except to say that it's important,” he cautioned.