Monday, August 23, 2004
A report released last week recommended
that the Ontario government restructure the Ontario Securities Commission
to eliminate an appearance of bias that has begun to "undermine the
integrity" of the province's securities crime watchdog. It's a timely
The unequivocal recommendation came from
a committee led by Ontario Integrity Commissioner Coulter
Osborne, who was
asked by the OSC itself to study its organizational structure. The Osborne
report, which has been tabled with the province's finance committee,
compels the Ontario government to respond to a pressing concern about the
legitimacy of the OSC's key operations.
Mr. Osborne was asked to study whether
people accused of securities violations can be confident they will receive
a fair hearing from the OSC when a single institution investigates,
prosecutes and adjudicates the cases. Those multiple roles are common at
most of Canada's securities commissions and at other industry regulatory
bodies, but questions about whether they are appropriate became
particularly pressing for the OSC after it was granted stronger sanction
powers last year, including the right to impose large fines on offenders.
Its growing powers have shifted it further along the judicial spectrum
between an industry association and a criminal court. The question is
whether the OSC has evolved to the point at which it needs a new
Mr. Osborne's report acknowledges there
are two broad ways to assess the fairness of the current system. On the
one hand, OSC commissioners who decide cases maintain a strict internal
separation from the enforcement officials who investigate cases. As such,
there is no body of evidence to suggest commission tribunals are making
biased or unjust decisions.
However, it's fair to argue that there is
an enormous perception problem when the same institution carries out all
roles in the administration of justice. In the criminal system, it would
be unthinkable for judges to work at the police station or in the same
offices as Crown attorneys. A division of roles is fundamental to the
perception that justice is being served. As OSC chairman David Brown
acknowledged last week, a perception of fairness is as important as the
For the OSC, the perception issues are
additionally tangled. Commissioners not only adjudicate cases but oversee
the commission as its board of directors. As a result, they hire and
supervise senior management and help formulate policy.
Critics of the current system argue that
this "institutional loyalty" makes it difficult for commissioners to
remain strictly impartial. Senior staff make critical decisions about
which cases to pursue and how to handle the prosecutions. If commissioners
reject the merits of a case at a hearing, they publicly overrule the
judgment of colleagues they hired.
Moreover, commissioners who help
formulate policies may have a bias when those issues confront them in
tribunal cases. If, for example, the OSC targets illegal insider trading
as a priority, can commissioners appear impartial when hearing the wave of
prosecutions that emerge?
The Osborne report says there is a simple
way to address these concerns. The province could create an independent
tribunal of securities experts to adjudicate cases, removing the judicial
role from the OSC. The report proposes that the province hire a panel of
part-time experts who would be paid a per diem and have offices separate
from the OSC's. This structure would be similar to that of the U.S.
Securities and Exchange Commission.
The idea has its detractors. Mr. Brown,
the OSC chairman, warned the finance committee last week that it could
prove difficult to find qualified people willing to give up all
potentially conflicting jobs to sit on a part-time tribunal. He also said
commissioners make better adjudicators because they play such a major role
in creating the policy goals of the commission, and so understand the
broader context of their decisions.
But those hurdles are not insurmountable.
Mr. Osborne said he is confident it would be possible to find good
adjudicators to fill the jobs. And there is no reason such people could
not stay current with the policy issues unfolding in the securities realm,
while remaining free of the conflicts that come with creating those
policies. It seems likely that Ontario's vast ranks of current or retired
lawyers, judges, academics and other professionals could yield a strong
crop of adjudicators. And it should be possible to hire part-time
panelists without imposing a large new financial burden on Ontario
The perception of bias is substantial in
the current system, and fairness would be better served with an
arm's-length structure. The benefits of dividing the OSC's functions
clearly outweigh the risks.