Investors Scrutinizing the Regulators

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Report urges more OSC accountability
Compensation for victims of rogue advisers also recommended

Tuesday, October 19, 2004

The Ontario Securities Commission should be more accountable to the public, while the victims of rogue advisers should be compensated for their losses, says a report recommending sweeping changes to the regulatory system.

The report, tabled in the Ontario Legislature yesterday, also calls for creation of a single regulator, echoing a recommendation made earlier this year by the federal government but rejected by every province with the exception of Ontario.

The single regulator would not only replace the country's 13 provincial and territorial regulators, its adjudicative role would be separate from its other functions, recommends the report, prepared by the standing committee on finance and economic affairs.

"I was very happy to see the strong support for a single regulator," Ontario's Management Board chairman Gerry Phillips said yesterday in an interview.

The report recommends that, failing substantial progress toward creating a single regulator over the next year, the Ontario government should take steps to separate its potentially conflicting roles as both prosecutor and adjudicator.

Even if there is no evidence of actual bias at the commission, the perception of bias has damaged the agency's credibility, the report says. "In our view, the issue of perception has become paramount," it says. "Any new single securities regulator should include a separate adjudicative function."

The government should also initiate a legislative review of the OSC that would make the agency more accountable to the public, the report says.

Mr. Phillips welcomed this. "I have confidence in the Ontario Securities Commission, but every organization needs to constantly be challenged to improve, and I think the report gives us some opportunities for improvement."

OSC chairman David Brown also welcomed the report. "I think their recommendations will be very powerful, and should help to maintain confidence in the capital markets," he said in an interview.

The report adopts many of the key recommendations made by the so-called Five Year Review Committee headed by corporate lawyer Purdy Crawford. That report, unveiled last year, also urged the provincial government to step up its oversight of the OSC by doing more studies of its operations, similar to reviews Congress in the United States undertakes of the Securities and Exchange Commission.

The Ontario legislature's standing committee on government agencies has not reviewed the OSC since 1988, yet during that time, the OSC has acquired greater independence from government, notes the standing committee's report. The standing committee also said in its report that the government should work with the OSC to set up a mechanism to allow investors to pursue restitution in a timely manner.

In other key areas, notably dealing with the country's self-regulatory agencies, the standing committee goes further than the Crawford committee.

The standing committee recommends the government create a task force to review the role of self-regulatory organizations, including whether their trade function and regulatory function should be separated. The Crawford committee initially made a similar proposal but backed down after the Investment Dealers Association of Canada persuaded it that the agency should continue wearing two hats.

The government committee made its recommendation after hearing from ordinary investors and others at public hearings in August. "The testimony received by the standing committee revealed a deep-seated skepticism on the part of the investing public," the report says. "They simply are not confident that complaints will always be handled in an objective manner under a system of self-regulation."