Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House


September 2004
OSC needs tough scrutiny

Ontario legislature misses opportunity to examine regulator thoroughly


By Glorianne Stromberg

It looks as though the Ontario Securities Commission has successfully dodged another bullet.

The provincial legislature has given its standing committee on finance and economic affairs (SCFEA) the narrow mandate of conducting a review of the five-year review committee’s final report on the Securities Act of Ontario. The preferred course is to appoint a select committee to examine not only the final report but also the OSC’s administration of its mandate under the act.

The final report was tabled in the legislature about 18 months ago. The public only learned about the SCFEA’s mandate in early August, when a notice was published in major newspapers saying the SCFEA would hold hearings on the report in mid-August.

The SCFEA’s appointment fills the letter of Securities Act requirements but avoids the spirit of the requirements. And there are procedural and substantive problems with the SCFEA’s appointment.

The procedural ones include not appointing the committee when the final report was tabled in the legislature; no public announcement in June of the committee’s appointment; short notice of hearing dates; setting hearing dates for mid-August, when many people are on holidays; limiting persons wanting to be heard to those the committee selects to hear; and limiting presentations to 10 minutes.

The substantive element is the missed opportunity to appoint a select committee. This committee would have consisted of members of the legislature with significant knowledge of securities and financial services matters. The committee’s mandate would have been to consider the final report, and the effectiveness of the Securities Act and the OSC’s administration of it.

It’s unfortunate government leaders missed the opportunity to take a serious look at the adequacy of securities and financial services regulation. In contrast to the specialized mandate of a select committee, the SCFEA’s activities relate mainly to pre-budget consultations, recommendations on budgetary matters and consideration of proposed financial legislation. Its members may not have sufficient knowledge of securities and financial services to review the report meaningfully.

There are many problems with the current regulatory regime. It isn’t working as well as it should to protect investors, contributing to a loss of confidence in the capital markets and concerns about fairness of their operations.

The last time the legislature took a close look at the OSC was 1988, when the standing committee on government agencies tabled its report. Since then, despite concerns about the OSC’s oversight of self-regulatory organizations, the effectiveness of these organizations and the overall efficiency of the OSC, the commission has been given free rein with little oversight by the legislature. Yes, statements of priorities and annual reports are tabled in the legislature, but there is little discussion of them. And no attention is paid to what is not contained in these documents.

The legislature has delegated the OSC a lot of responsibility, including power to make rules with the same force as if they were contained in a statute enacted by the legislature. Many OSC rules supercede express provisions of the Securities Act.

The public interest requires that the legislature exercise better oversight of the OSC and other financial services regulators. Hopefully, the SCFEA will recognize this need and recommend measures to enhance the legislature’s oversight of securities and other financial services regulation in the province.

A standing committee to consider these points would be a start. It would be charged with assessing the adequacy of the statements of priorities and annual reports. Establishing an independent government accountability agency similar to the U.S. General Accounting Office would also be desirable.

The final report has many good recommendations. But there are weaknesses, particularly recommendations relating to SROs. The legislature’s reliance on SROs is out of step with reality, and the OSC’s oversight of them is questionable.

The SCFEA has important work to do. The people of Ontario can only hope it looks behind the glossy accountability presentations, self-satisfaction surveys and pollsters’ assurances that “the OSC continues to be seen as a strong, necessary organization by its stakeholders.” The OSC not only has to be seen as a strong, necessary organization but it also has to be one. IE