|Separate OSC roles: report
Overhaul should split
adjudicative and enforcement to counter 'bias' perception
Tuesday, October 19, 2004
Provincial politicians should overhaul the structure of the Ontario
Securities Commission to separate its adjudicative and enforcement powers,
a government committee has recommended.
The issue of perception of bias at the OSC "has become paramount," the
standing committee on finance and economic affairs wrote in its report,
which was tabled at the Ontario legislature yesterday.
The report backs the creation of a single securities regulator to replace
the current patchwork system of 13 provincial and territorial securities
"Any new single securities regulator should include a separate
adjudicative function," the committee wrote. "Failing substantial progress
toward the establishment of such a regulator over the next 12 months, we
believe the Ontario government should take the necessary steps to separate
the adjudicative role of the [OSC] from its other roles.
BRENNAN OíCONNOR / NATIONAL POST
OSC chairman David Brown will not
stand in the way of splitting off the regulatorís adjudicative
"This should not preclude the government from immediately beginning the
serious examination of the necessary steps needed to undertake such a
Currently, OSC staff investigate and prosecute complaints, while a panel
of OSC commissioners adjudicates them. The regulator -- which also has
policymaking authority -- is set up to ensure the two arms act without
influence over or contact with each other, although all operate under the
David Brown, OSC's chairman, said yesterday he would not stand in the way
of splitting off the regulator's adjudicative role, as long as the move
"I'm quite happy to work with the government to try to find the best
possible model that we can," he said in an interview. "I think we have to
make sure that a separate tribunal will indeed serve investors."
The standing committee, made up of provincial politicians of various
stripes, was tasked with reviewing OSC's structure, consider the report of
the so-called Five-Year Review Committee, which examined securities
regulation in Ontario, and to consider a single securities regulator for
all of Canada. It held two days of hearings at Queen's Park in August.
The committee noted that the Alberta Securities Commission separated its
adjudicative role from its enforcement arm in 1988, but found it
cumbersome and reverted to its original model in 1996.
Gerry Phillips, chairman of the government's management board and overseer
of the OSC, said in an interview yesterday he does not have serious
problems with any of the standing committee's 14 recommendations.
"There were none that I disagreed with at first read," he said. He will
prepare a formal response within three weeks.
Asked about the recommendation to separate the OSC's adjudicative role,
Mr. Phillips said, "unless someone makes a fairly strong argument that I
haven't yet heard, I personally am inclined to think this recommendation
has got a fair bit of merit."
The standing committee also urged the government to review its oversight
of the OSC, which has grown increasingly independent from the legislature.
For instance, before the regulator became a Crown corporation in 1994, its
internal controls were set up and monitored by the government. "Now, the
commission establishes its own controls," the standing committee noted,
adding it believes "the status quo is unacceptable."
Mr. Phillips agreed, saying, "I think there's some merit in ... the
securities commission coming before a legislative committee on an annual
basis" for a review.
"I have a lot of confidence in the Ontario Securities Commission, but I
think we have to challenge them to keep getting better."
Mr. Brown said the regulator would be comfortable subjecting itself to an
annual legislative review, noting it will give the OSC a chance for
additional dialogue with provincial politicians.
The standing committee's recommendation to separate the OSC's adjudicative
function from its other roles backs a report of the so-called Osborne
committee, struck by the OSC itself.
That committee, headed by Coulter
Osborne, Ontario's integrity
commissioner, recommended a structural overhaul at the OSC: "We are
satisfied that the nature of the apprehension of bias has become
sufficiently acute as to not only undermine the commission's adjudicative
process, but also the integrity of the commission as a whole," the Osborne
committee wrote in its report.
The OSC has recently been granted powers to lay stiffer penalties and
force the disgorgement of profits, which has prompted critics to renew
calls for change in the OSC's structure.
However, the standing committee yesterday recommended that the regulator
not be given additional lawmaking powers under the provincial securities
act, due to concerns with current levels of legislative oversight.
Other major recommendations of the Ontario standing committee on finance
and economic affairs:
- The OSC should require public mutual funds to set up an independent
governance body "that provides for substantial investor protection."
- The government proclaim civil-liability provisions that would give
investors the right to sue a public company for making a material
misrepresentations or failing to comply with disclosure requirements. Mr.
Phillips said yesterday he plans to act on this recommendation in the near
- That a task force be set up to review the role of self-regulatory