Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House


Nov. 2, 2004. 01:00 AM

Province strongly backs national securities regulator, minister says
Wants to make it easier to sue
Expands investors' right to take action

The provincial government is forging ahead with joint efforts to create a national stock market regulator, as well as legislation that will make it easier for investors to sue companies.

Having a single securities watchdog rather than the current patchwork of 13 separate provincial and territorial agencies would "inspire confidence" in Canada's securities industry, said Gerry Phillips, the minister responsible for the industry.


David Brown, head of the Ontario Securities Commission, delivers the keynote speech yesterday at its annual industry conference.

"We are going to be persistent," Phillips told an industry conference held by the Ontario Securities Commission yesterday. "My experience is that if an idea is important and it's right, what you have to do is stick at it and eventually you will make it happen."

Ontario has long pushed for a single regulator, while British Columbia, Alberta and Quebec are among those that oppose the idea, fearing a centralized system that favours big companies and ignores regional needs.

Phillips, who is chairman of Management Board of Cabinet, made the comments during the annual conference held by the OSC at the Metro Toronto Convention Centre.

He said the provincial government also plans to table legislation that will allow investors to bring lawsuits against companies and corporate insiders that issue false and misleading statements in press releases and financial statements.

At the moment, investors can only sue for misrepresentations made when a prospectus for the sale of shares is issued.

The government will also launch a review of the Investment Dealers Association and the Mutual Fund Dealers Association of Canada to determine whether the self-regulating trade organizations should continue to play the primary role in reviewing investor complaints and disciplining investment brokers.

The proposals are among 14 recommendations delivered in a report in mid-October by the Standing Committee on Finance and Economic Affairs.

Other recommendations still need further review, Phillips said. Among them: finding a way to secure restitution for investors who have been duped by rogue investment advisers, and separating the OSC's enforcement and disciplinary functions. Currently, the commission is prosecuting and meting out judgment in cases of wrongdoing.

While there has been no evidence of bias in OSC proceedings, there is a growing public perception that it is inappropriate for the commission to wear both hats.

Doug Hyndman, chair of the British Columbia Securities Commission, expressed concern at the prospect of splitting the OSC.

Because OSC commissioners are involved in policy issues, they bring "expertise and experience" to bear in disciplinary hearings that would be lost should the agency be split in two, he said.

"I think the people calling for this might end up regretting it," he told the conference.

OSC chair David Brown, who has supported the Ontario government recommendations, echoed those concerns.

"I want to make sure those strengths are not lost, or that they are at least replaced with something that is equivalent," he said.

The current OSC probe into the country's mutual funds industry was also a hot topic at the day-long conference, which attracts Bay Street executives, as well as academics and investor advocates.

Brown declined to comment on the progress of talks between the commission and four mutual fund firms, now trying to hammer out an agreement to settle allegations of improper market timing.

The commission is considering implementing a mandatory short-term trading fee to deter this practice, which involves rapid in-and-out trading in mutual funds to capitalize on time zone differences.

Leslie Byberg, manager of the Ontario Securities Commission's investment funds branch stressed that the proposal is preliminary.