By James Langton
The long-awaited osborne report delivers
a stinging criticism of the Ontario Securities Commission’s
multiple roles as investigator, prosecutor and judge, suggesting a
perception of bias is undermining the commission’s integrity, and calling
on government to establish a separate tribunal for disciplinary hearings.
The report, largely based on a canvass of
industry opinions, finds a “pervasive and widely held” belief that a fair
hearing can’t be obtained at the OSC. It concludes that arguments in
favour of hiving off the OSC’s adjudicative function are “persuasive,
OSC chairman David Brown, who released
the report, insists he is indifferent on the issue. Brown says a better
structural model should be adopted if it can be found; otherwise, the
Toronto-based OSC should stick to the status quo.
The report proposes creating a tribunal —
provisionally titled the Ontario Securities Tribunal — that would have
jurisdiction over all disciplinary hearings and reviews of SRO decisions
(not routine transactional decisions), with a further right of appeal to
the court. The report recommends the tribunal should be composed of up to
12 people, including a permanent chair, with commissioners appointed by
the lieutenant-governor-in-council. It would have independent funding, its
own office space and be accountable to the legislature.
Despite the unequivocal stance of the
committee, headed by Ontario’s integrity commissioner Coulter Osborne, and
the OSC’s official position of not caring one way or the other, it appears
to some that the commission opposes the idea of spinning off its
adjudicative function. Some members of the standing committee on finance
and economic affairs, which was convened to review the recommendations of
the final report of the five-year review committee, have the impression
the OSC would prefer to retain its current structure.
“Mr. Brown presented both sides of the
argument but, quite bluntly to me, wants things to remain the way they
are,” says committee member Michael Prue, a New Democratic MPP.
Such an impression was probably fed by
the OSC’s decision to submit a few legal opinions that it ordered in
reaction to the Osborne committee’s findings. An opinion from
Toronto-based Torys LLP finds the commission’s multiple roles, as
well as the dual role of commissioners in both policy-making and
adjudication, doesn’t impair its impartiality. The OSC also sought an
opinion from Toronto-based McCarthy Tétrault LLP, which declares
the commission’s structure doesn’t conflict with its responsibilities to
oversee enforcement. On the strength of such findings, the OSC is
confident it can carry on as it is, without legal or constitutional
Perception, rather than a proven bias, is
clearly the problem, as the Osborne committee found. The central question
for the government is whether this perception is substantial enough to
warrant restructuring the commission. The Osborne committee found the
problem does indeed rise to such a level. It says that it worked on the
assumption that it would not recommend change without clear and convincing
evidence that change is necessary. Last year, three former OSC chairmen
recommended the same course.
However, the OSC’s decision to sit on the
report for six months and then release it, along with two legal opinions
that support the status quo, raises questions with some SCFEA members
about the OSC’s true feelings about the report’s findings. Deb Matthews,
Liberal MPP, suggested to the hearing that the commission didn’t get the
results it wanted from the Osborne committee so it went out and got the
Brown denies the assertion, insisting the
OSC sought the legal opinions to clarify a few legal questions raised by
the report, to ensure it could continue carrying on hearings as usual.
Nevertheless, the commission’s handling of the report is apparently still
creating problems of public perception.
Notwithstanding some committee members’
skepticism, Brown insists the OSC is open to change. He says he is
sensitive to perceptions of bias and its effect on the commission’s
ability to do its job. But he maintains there are advantages of an
integrated agency with both policy-making and adjudicative/enforcement
functions under one roof. The current model, he says, leads to both better
policy and better adjudication. By hearing real cases, commissioners’
policy-making is improved, he says, and their decision-making is enhanced
by their hands-on knowledge.
The Osborne report rejects such
arguments. It finds little evidence for the need to “cross-pollinate” the
adjudicative and policy-making functions.
To the extent that the OSC is willing to
entertain the possibility of splitting out the adjudicative function, it
appears eager to hitch this option to the eventual creation of a single,
national regulator. In his comments to the legislative committee, Brown
says a separate tribunal may make more sense if it is implemented on a
national level, because only then would it have enough work to do and be
able to attract worthy adjudicators.
“I believe a somewhat stronger case could
be made for a separate tribunal if we were to establish a single
securities regulator for Canada,” Brown says. “Such a tribunal would
probably have a significant case load with national reach, enabling it to
attract and build a base of qualified experts. The tribunal would also
have the flexibility to conduct hearings wherever in Canada they are
The proposal to tie the commission’s
restructuring to the issue of a single regulator may be contributing to
the perception that the OSC would prefer the status quo. With all the
competing national reform proposals under consideration and the lack of
consensus, it’s hard to conclude that a single regulator is much more than
a fond fantasy at this point. So attaching the notion of restructuring the
commission to the possibility of a single regulator seems speculation at
best, procrastination at worst The Osborne committee clearly believes a
change is justified under current circumstances. Indeed, it has found the
evidence compelling. It rejects many of Brown’s arguments for the status
quo. It argues there would be sufficient work for a separate tribunal in
Ontario alone and there would be little problem finding people to serve on
the tribunal. Indeed, it says, once freed from the responsibility of
conducting hearings, it’s possible that more cases could be brought
forward than the OSC currently hears.
The Osborne report also recommends the
OSC establish what it calls the “enforcement advisory committee” to
oversee its enforcement arm. It says OSC commissioners should have more
input on enforcement matters once the adjudication function is spun off.
Among the alternatives to splitting out
the adjudicative function, the Osborne committee also considered splitting
out the enforcement branch, but it found little support for the idea. It
contemplated an internal restructuring of the adjudication function, but
concluded such a change would not adequately address the perception
problems. It has also pondered making greater use of the courts to hear
disciplinary cases, but found little support for transferring
administrative discipline to such a forum.
Most of those who testified before the
legislative committee seem to agree with the Osborne committee’s
recommendation that the commission should be divided. Of course, their
comments were made with little time to digest the report.
Tom Hockin, president and CEO of the
Investment Funds Institute of Canada in Toronto, is one prominent
industry voice siding with the findings of the Osborne report in his
testimony at the SCFEA hearings. Hockin stresses that his comments are his
personal opinions and not the views of IFIC members.
Nevertheless, responding to committee
questions, he said 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.
On the other side of the debate, Toronto
securities lawyer Phil Anisman supports the current structure and says the
Osborne committee “got it wrong.” He maintains a better solution is to
improve the OSC’s accountability by establishing a legislative committee
it must appear before every year to defend its work — a solution he says
would preserve the advantages of an integrated agency while dispelling
some perception problems.
Also speaking at the SCFEA hearings,
Gerry Phillips, the acting minister responsible for securities regulation
and chairman of Ontario’s Management Board Secretariat, says the
government approaches the issue of the commission’s structure with an open
mind. Phillips says a decision on the issue hasn’t been made, but there
are some “fairly good arguments” in favour of splitting out some OSC
adjudicative functions. He adds the government will probably wait for the
SCFEA committee’s response to the report and public reaction before coming
to a decision. He also notes the question of splitting out the
adjudicative function may be particularly relevant in the context of a
But hitching the restructuring of the OSC
to the development of a single regulator seems to be a red herring. An
independent committee was struck to consider the issue for the OSC alone.
It took the task seriously and decided the commission’s reputation with
market players is at such a low ebb it’s time to spin off the adjudication
function. It remains to be seen whether the government accepts the