Investors Scrutinizing the Regulators

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Ontario to recommend split OSC functions
Compelling argument against separating prosecutor and adjudicator roles yet to be made, minister says

Monday, November 1, 2004

By James Langton

Unless he's presented with a novel argument to the contrary, Gerry Phillips, chairman of the Management Board of Cabinet, is expected to call for the Ontario Securities Commission's adjudicative function to be hived off in a separate body.

Talking to reporters following his address at the Dialogue with the OSC in Toronto Monday, Phillips suggested that the government would come forward with a recommendation to split the OSC's dual functions, as was recommended by a legislative committee in October, and the
Osborne committee report earlier this year.

Phillips said that he hasn't yet heard a compelling argument against the recommendation to split the commission's two functions, the prosecutorial and the adjudicative. He pointed out that there are arguments on both sides, and that the issue is only public perception of bias, not actual bias. Yet, he suggested that the government will follow the standing committee's recommendation on this issue. Further consultation will take place, but Phillips said he hasn't yet heard an argument against the idea that would defeat the pressure to divide the commission.

The other possible caveat is if the work toward a single, national regulator makes substantial progress. While the standing committee recommended that a split commission structure should ideally be introduced with a single regulator, that decision obviously wouldn't be solely up the Ontario government.

Phillips remains committed to the idea of working toward a single regulator. He said that he will continue to try to advance discussions with the other provincial jurisdictions to make the idea seem less Ontario-centric. At the same time, it will also be seeking to put more flesh on the bones of the proposal he made in June.

Overall, Phillips said that the government is "comfortable" with all of the legislative committee's recommendations. The government doesn't yet have formal responses to most of the committee's recommendations. In the coming months, it will be issuing a response to them. Phillips singled out committee recommendations such as: striking a task force to review the function of self-regulatory organizations, fund governance and a better mechanism for delivering investor restitution, as ones that are likely to get government attention.

In line with his response to the standing committee report, the only recommendation it has officially pledged to adopt is to introduce legislation to enshrine civil liability for secondary market disclosure. On Monday, Phillips said the government will soon be introducing such legislation.

On the issue of fund governance, OSC chair David Brown said in his opening remarks that it's reasonable to expect that tougher fund governance rules will be proposed in the spring. However, Brown noted that discussions on the issue are still underway with the other members of the Canadian Securities Administrators.