Investors Scrutinizing the Regulators

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OSC policing, judging roles to be split in major overhaul
Ontario to create a separate hearing tribunal to weigh securities offences

Monday, Nov 1, 2004
Ontario Management Board Secretariat chairman Gerry Phillips told a conference in Toronto that he wants the OSC's roles split within the next 12 months.

The Ontario government plans to radically overhaul the province's securities regulator within a year by splitting its dual roles as both prosecutor and adjudicator.

Ontario Management Board chairman Gerry Phillips said Monday that the government endorses all 14 recommendations made in a legislative committee's report calling for sweeping changes to the regulatory system, including the creation of a separate hearing tribunal. He said he plans to recommend that the process of separating the Ontario Securities Commission's two roles begin within the next 12 months. “I have not seen a strong argument against it,” he told reporters following his remarks at an OSC conference, where he delivered the keynote address.

The report, prepared by the standing committee on finance and economic affairs and tabled in the Ontario Legislature last month, calls for the creation of a single regulator that would replace the existing patchwork of 13 provincial and territorial bodies. Failing substantial progress on that front over the next year, the provincial government should take steps to separate the regulator's potentially conflicting dual roles, the report says.

Mr. Phillips said the issue will be addressed in a way that does not compromise the OSC's effectiveness. “This government continues to have every confidence in the OSC and that its internal procedures are effective in precluding bias.”

OSC chairman David Brown supported the move, although cautiously. “Part of me is quite supportive of this, but another part of me worries there is still quite a bit of thinking that needs to be done,” he told a panel discussion on the topic.

The OSC prosecutes securities violators in Ontario and presides over disciplinary hearings, acting in both a policing and judicial role. Momentum has been building to restructure the OSC since last year when a high-powered group of former commission chairmen began pushing to separate its roles.

Mr. Brown acknowledged Monday that the process began when securities lawyers Edward Waitzer, Stanley Beck and James Baillie met with him to discuss the OSC's structure and whether the time had come to spin off the tribunal function from the rest of the agency.

That same year, a committee headed by corporate lawyer Purdy Crawford said the OSC's structure can give rise to “perceptions of potential for conflict or abuse.”

In response to that committee, the OSC appointed a three-man committee headed by Coulter Osborne, the province's Integrity Commissioner. The Osborne committee said in a report this year that the government should create a separate tribunal to examine cases involving securities violations.

Mr. Osborne, who was on the same panel as Mr. Brown Monday, explained why his committee felt the status quo was no longer good enough.

“We decided there should be no change unless there was clear and convincing evidence in support of that change,” he said. “The decibel level of complaints about the current structure of the OSC increased during our work.”

However, one of the panel members, British Columbia Securities Commission chairman Douglas Hyndman, said he vigorously opposes the creation of a separate tribunal.

He said he places a high value on the expertise of commissioners, who sit on hearing tribunals as well as set policy. There is real value in having commissioners involved in creating policy also sit on tribunals, Mr. Hyndman said. It's essential to have tribunal members who have an understanding of the regulatory structure, who can assess the significance of evidence and misconduct, he said.

Mr. Phillips told reporters that, in his view, the naysayers have not made a compelling case for maintaining the status quo. “I have not seen a strong argument against” setting up a separate tribunal.

Mr. Phillips also said Monday that he plans to re-introduce legislation within a matter of weeks that will make it easier for aggrieved investors to recoup their losses in court.

The legislation will allow investors to sue executives and directors of publicly traded companies for misrepresentations or failing to make timely disclosure. The legislation was to be proclaimed into law last year as part of a package of reforms aimed at strengthening the province's securities laws. But the civil liability provision was delayed after several companies lobbied against it.

Ontario's Mr. Phillips also vowed to continue pushing for the creation of a single regulator — a move supported by the federal government but rejected by every other province.

“Our number one securities priority is to find a way in this country to build a common securities regulator for Canada,” he said.