Investors Scrutinizing the Regulators

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Move to split off OSC arbitration role


Wojtek Dabrowski
Financial Post

Tuesday, November 02, 2004

The Ontario government will overhaul the structure of the Ontario Securities Commission to separate its adjudicative role, unless significant progress is made toward a single national securities regulator, the commission's government overseer said yesterday.

Gerry Phillips, the Ontario minister responsible for securities regulation, said the province will hold consultations on the topic and, if a single regulator is not within reach a year from now, he will recommend the restructuring.

"I have not seen a strong argument against it," Mr. Phillips said following a speech during a day-long conference hosted by the OSC in Toronto yesterday.

Later, he told the provincial legislature that progress is needed in the next 12 months in starting to "look in earnest at a separate adjudicative tribunal for the OSC."

An overhaul of the OSC would follow a recommendation by an all-party Ontario standing committee on finance and economic affairs, which said last month work should begin immediately on determining how such a restructuring would proceed.

That committee also recommended that any single regulator in Canada have a separate adjudicative function.

If there is no substantial progress toward a single commission in the next 12 months, the OSC's adjudicative role should be split off, the committee added in its report.

The debate over the need for a single regulator in Canada has gone on for decades. Quebec, Alberta and British Columbia are strongly opposed to the proposal.

Mr. Phillips yesterday agreed that even if a single regulator is achieved, it should be set up so that its adjudicative powers are separated from its enforcement and policymaking functions.

A move to split off the OSC's adjudicative role would involve the creation of a separate tribunal which would hold disciplinary hearings brought forward by OSC enforcement staff.

David Brown, OSC chairman, told reporters yesterday that work has commenced on determining how such a tribunal could be created.

"What we can do is to make sure that the issues are thought through and that there are mechanisms put in place to make sure that this is not a step backwards," Mr. Brown.

Mr. Phillips "will be looking to us for assistance in those matters," Mr. Brown added. "As you heard him say, he does not want to do anything that would erode the effectiveness of securities regulation in Ontario."

Under the OSC's current structure, commission 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 OSC banner.

Still, critics have raised concerns over potential bias at the commission, which prompted the regulator to investigate.

A committee struck by the OSC to study the issue found "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." While the perception of bias was a concern, no actual bias at the OSC was uncovered.

A major concern over establishing a separate tribunal is that it will lead to a loss of expertise gained by having commissioners hear cases and then use that experience to shape policy.

Another difficulty being mulled over by Messrs. Brown and Phillips is finding a sufficient number of individuals with the expertise required to serve on a separate adjudicative tribunal.

Mr. Phillips also told the Ontario legislature yesterday he plans to move quickly on a number of other recommendations made by the standing committee. These include creating civil-liability provisions for secondary-market disclosure and setting up a task force to review the role of self-regulatory organizations.