Investors Scrutinizing the Regulators

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Ontario report calls for sweeping regulatory reform

Current state of OSC oversight called “unacceptable”

Monday, October 18, 2004

By James Langton

Ontario’s Standing Committee on Finance and Economic Affairs has delivered a report that casts broad skepticism on the current state of securities regulation and calls for sweeping reform including greater oversight of securities regulators and improved redress for investors.

The SCFEA tabled its report in the legislature today, boiling down its conclusions to 14 recommendations. Among them:

  • spinning off the Ontario Securities Commission’s adjudicative function, as was recommended by the Osborne Committee;
  • establishing a task force to review the role of self-regulatory organizations, including whether their trade association and regulatory functions should be separated;
  • introducing civil liability for secondary market disclosure; and
  • bringing the government and the OSC together to “establish a workable mechanism that would allow investors to pursue restitution in a timely and affordable manner”.

On the issue of breaking out the adjudicative function of the OSC, the report says, “In our view, the issue of perception has become paramount.” It recommends that any new single securities regulator should include a separate adjudicative function. It added that if there is no substantial progress toward that goal over the next 12 months, the government should split up the OSC.

The report says that the current state of OSC oversight “is unacceptable”, and it recommends that the government initiate a review of the legislature’s oversight. “Any new oversight mechanism should include a requirement that the annual reports of the commission be automatically referred to a Committee of the Legislature, and should ensure that the Committee has the ability to compel witnesses to appear before it, including the responsible minister, to answer questions regarding progress in implementing recommendations approved by the legislature.”

As for SROs, the report says, “The testimony received by the Standing Committee revealed a deep-seated scepticism on the part of the investing public. They simply are not confident that complaints will always be handled in an objective manner under a system of self-regulation.”

On that basis, “the question of whether SROs should be given more powers or, indeed, whether they should have any powers at all, should be the subject of further review by a task force established to examine this specific issue.”

Among its more technical matters, the report says: mutual funds should be required to establish independent governance agencies; the OSC should be given rulemaking authority over corporate governance; but, the OSC shouldn’t get blanket rulemaking authority; uniform transfer legislation should be passed; it also said that the government should introduce legislation to amend the proxy solicitation rules.

As for longer-range recommendations, the report says the next review committee should be struck in May 2007 with a final report delivered by early 2009. As well the Ontario government should continue to pursue a single securities regulator.