Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House



Consultation framework needs makeover
The British approach to financial reforms should be considered for use in Canada
Wednesday, December 5, 2007

By Pamela Reeve

While Canada continues its decades-old debate about a national securities regulator, other jurisdictions have moved forward with progressive reforms. Take consultation. Even though some provincial regulators have implemented measures to increase consultation with retail investors, these changes have not gone far enough.

If the consultation process is going to be credible and effective, care must be taken to provide the necessary framework. Those participating in the process must have sufficient time to study the issues as well as adequate funding. Facilities must be provided, transparency in reporting to the public is essential, and opportunities should be made available for collaboration with related bodies.

For the past two years, I have served on the Investor Advisory Committee of the Ontario Securities Commission. The IAC was established following the OSC Investor Town Hall in May 2005 with the intention of making the views and concerns of consumer retail investors accessible to the commission.

Nevertheless, the IAC functions within constraints determined by the OSC. It has met for about 20 hours per year for the past two years, with up to three months between meetings. The members work on a volunteer basis and the committee has no research budget. The committee’s terms of reference and discussions are confidential. It has not produced any reports that are available to the public.

The public cannot communicate with the committee nor is there a mechanism for the public to verify whether and how its interests have been considered by the committee. The IAC does not discuss issues with the OSC’s other consultative committees.

The contrast with the equivalent body in Britain, the Financial Services Consumer Panel (, is striking. The consumer panel is a well funded, productive, and transparent organization. It monitors the FSA to ensure that it regulates the industry in the interest of consumers. For the past two years, it has evaluated the FSA from a consumer perspective and has assessed its regulatory work according to a set of performance criteria. Although the panel is an independent body, it receives a budget from the Financial Services Authority of about $1 million as well as staff and office space.

The panel has produced a set of publications, including “Responses to Consultations,” press releases, and research reports. It has its own Web site with an invitation for input from those whose interests it represents: “The more we hear from people about their concerns to do with financial services, the better we’ll be able to do our job. So please tell us what you think about the work we are doing and of the issues you think we should be considering.” The consumer panel thus functions as a two-way communication channel between the larger public and the FSA.

The consultation model in Britain also merits consideration from an industry perspective. There are three independent bodies that represent various interests: the Financial Services Consumer Panel mentioned above, the Financial Services Practitioner Panel ( representing industry interests, and the Smaller Businesses Practitioner Panel, representing the interests of small regulated firms. The first two panels have been in operation for almost a decade and were given statutory powers under the Financial Services and Markets Act 2000. The various panels consult with each other and the consumer panel also works collaboratively with industry.

A current focus is the way financial products are sold and advice is paid for. Members of the consumer panel have been participating in industry working groups established by the FSA to consider potentially dramatic reforms in this area. Also, the consumer panel is monitoring the impact on consumers of the ongoing shift from rules-based to principles-based regulation in Britain.

Concerns arose that this would eliminate public consultation, which is part of a rules-based approach. In response, the panel was allowed to review industry guidelines prior to confirmation by the FSA. The panel also meets with government and industry associations and sends representatives to related conferences. One finds here a process of multi-stakeholder consultation, executed in a transparent and professional manner.

Whether or not Canada moves to a national securities regulator, the best practices of other jurisdictions, such as Britain’s consultative panels, should be considered for vigorous adoption. If the equivalent of such bodies could be established in Canada, this would embed collaborative consultation in the regulatory framework and would create a multi-stakeholder basis for further reform.

Pamela J. Reeve writes on investor protection and is an associate professor of philosophy at St. Augustine’s Seminary, a member college of the Toronto School of Theology.