Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House


Oct. 19, 2004. 01:00 AM

Ontario to act on disclosure law

Companies will be held liable for misleading information

Offending firms, executives, could face civil suits by investors


Ontario plans to finally make companies and insiders liable to be sued for issuing false or misleading press releases and financial statements.

Gerry Phillips, the minister responsible for securities regulation, said that is among the first of 14 recommendations released yesterday by an all-party committee that the government will act upon.

This has been a hot button with major pension funds who have had to go to the United States to sue some Canadian companies. But legislation and regulations initiated by the former Tory government were delayed by the election a year ago. Phillips vowed to develop legislation to deal with this question.

At the moment, investors can only sue companies and insiders for misrepresentations made when a prospectus for the sale of shares in issued.

"The civil liability issue ... is one I hope to move on very quickly," said Phillips, who is chairman of Management Board of Cabinet. He also welcomed the committee's support for a national securities regulator and a revamped Ontario Securities Commission.

As the Toronto Star reported last Friday, the Standing Committee on Finance and Economic Affairs has made several recommendations to strengthen protection for investors. But Phillips said several of these recommendations will require further consultation and study.

Backbenchers on the committee want the OSC to establish a workable mechanism for investors to seek restitution in a timely and affordable manner, independent boards with substantial investor protection for mutual funds, and a review of the structure of self-regulatory organizations, like the Investment Dealers Association of Canada, over the next year.

Phillips said while he has confidence in the OSC, he thinks a proposal to split off the commission's adjudication function from its other roles of rule-making and prosecution is sound.

"My instincts are that we will proceed with that," he said.

"A single national regulator ... is obviously the Number 1 issue in securities regulations in the country," said Phillips. "Almost without exception the business community, and I think the investment community, support it.

"So I am going to continue to work on it. I think the next step will be to round out the proposal we put forward in June."

Phillips noted in a news release that the province has "stated its view that a single regulator would help improve the competitive position of Canada's capital markets and strengthen the foundation for economic growth in Ontario and across Canada.

"The Ontario Legislature is signalling that the Ontario government is right to be taking a leadership role on a move to a common regulator for Canada," Phillips added.

The committee report was part of the first five-year review of the Ontario Securities Commission required by a decade-old change of law. Now, however, the committee thinks annual legislative reviews are necessary.

"It is important that we have yearly reviews as opposed to five-year reviews," said New Democrat Michael Prue.

"I think five years is just too long. Times are moving very quickly now."

Tory MPP John O'Toole said splitting off the adjudication of the OSC, along with the structure in other provinces, could help Ontario advance the cause of a single national regulator, an idea opposed by some provinces, notably Quebec.

David Brown, chairman of the OSC, said he could live with all of the recommendations of the committee, even though there is no legal imperative for a separate adjudicative function.

He said the OSC would work with the government to establish a separate adjudicative function that protects the interests of investors if no progress is made in the next year on a national securities regulator.

Brown said the OSC's goal is to "ensure that investors have access to an effective restitution process that is easily accessible and affordable." But he said there should be further consultation about the effectiveness of what's already in place.

Brown said that several investor advocates who caught the ear of the committee had bad experiences before the Investment Dealers Association established its mediation service for claims under $100,000 and before the national Banking Ombudsman's role was expanded to cover securities complaints.

"We need to get out there and talk to many more investors who have had experience," he said. "I think that you hear from a small handful who have been dissatisfied with the result and, in some cases, who have exhausted appeal channels and are still dissatisfied.

"In fact, the process may be working the way it is supposed to; it is just not producing the results they hoped to see."