Investors Scrutinizing the Regulators

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IDA audit quietly released

Doug Watt

(January 13, 2005) It took nearly five years, but the Ontario Securities Commission has finally given up the fight to keep a highly-critical 25-page audit of the IDA confidential. Investor advocates are welcoming the release, but are casting doubt on claims by the IDA that all the problems outlined in the report have been dealt with.

 

Jim Roache who lobbied for the report's release is pleased the audit is finally public. "Better late than never," he says.

"However, to suggest that the matters it addresses as problematic have been fully addressed, such that the report's observations are no longer relevant, is disingenuous," Roache adds.

The audit contains nearly a dozen specific criticisms of IDA operations and recommendations for change. For instance, it points to the need for the IDA to properly manage its dual role as a self-regulatory organization (SRO) and trade association to manage potential conflicts of interest.

The audit also calls for significant improvement in the IDA's corporate governance, organizational structure, and enforcement department, pointing to a backlog of cases. It also recommends that the IDA establish policies and procedures to evaluate the effectiveness of both the board of directors and the association's various committees.

After the audit was delivered in 2000, the IDA hired an outside firm to conduct an independent review, culminating in a number of staffing changes, including the departure of Greg Clarke, vice-president of member regulation, and enforcement director Fred Maefs.

On top of those changes, Paul Bourque, the IDA's current vice-president of member regulation, says the association has now eliminated its backlog of cases and has made significant changes to its policies and procedures.

However, Roache is not convinced, noting that he works with abused investors regularly and has yet to meet a single person who's been satisfied with their dealings with any of the country's securities commissions and self-regulatory organizations. "Not for nothing were our representations to the wise person's committee and the [Ontario government's] five year review in support of a unified system and other necessary changes."

The tale of how the audit finally became public is a story in itself. It was sent to an individual last week following a request filed with the province's Information and Privacy Commission and was posted on the Internet yesterday by investor advocate Robert Kyle.

The Information and Privacy Commission ordered the OSC to release the audit last year but the regulator resisted and the matter was heading for the courts, until the OSC had a change of heart.

"The report was prepared on the understanding that it remain confidential," says OSC spokesperson Eric Pelletier. "But with the passage of time and the resources that were required to continue on with the file, we decided it would be appropriate for us to discontinue the judicial review."

Kyle speculates that the OSC didn't want to end up in a messy and very public court battle with another government agency, adding that it would appear that the regulator has reviewed its position on disclosure and transparency in the marketplace and found it to be wanting.

"The case could have led to larger questions," he says, "such as the relationship between the IDA and the OSC and the nature of the jurisdiction of the IDA over its members."

Whatever the reason for the OSC's decision, it appears similar reports won't be left in legal limbo for years. "Going forward, we have said that we will be releasing results from future reports because there's an interest among stakeholders for information," says Pelletier. Still, the IDA audit hasn't been publicly released by the OSC and Pelletier says there are no plans to do so.

To read the IDA audit (in PDF format) please click here.



Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com