Investors Scrutinizing the Regulators

Home Page


Securities Regulation In CanadA

Fox Guarding the Hen House



Session: 38:1
Date: 20041101


The House met at 1330.



Hon Gerry Phillips (Chair of the Management Board of Cabinet): I rise today to respond to the Standing committee on finance and economic affairs and its review of the Five-Year Review Committee's report on the Ontario Securities Act. I thank the members of this committee for their unanimous support that they presented here on October 18.

This is a very solid report. It recognizes the need for investors to have confidence that their investments and interests are being well protected.

The committee made 14 specific recommendations. I have no major concerns with the direction of any of them. We will move on half of these now, or in the very near future. The others will require further input from stakeholders and the public.

The committee strongly recommends that the Ontario government continue to pursue a single securities regulator for Canada. Canada is the only developed country without some form of common regulator, and this is Ontario's number one securities reform priority. We are following this recommendation by persistently working toward this goal with stakeholders and the responsible ministers in other provinces and territories.

The committee recommends ensuring that there are strong incentives for public companies and other participants in our capital markets to do the right thing, and that when there are problems, all of our investors should have timely and affordable means to seek redress.

This bring us to a second major recommendation of the committee; that is, civil liability for secondary markets. Civil liability gives investors the right to sue companies for misleading disclosures or fraudulent actions. Similar rights already exist in the primary market. This means that investors can sue now, if, for example, there are false or misleading statements in a prospectus on an initial public offering. But currently, investors do not have the same rights, after the initial public offering, in the trading that occurs every day in our markets, and that is where the vast majority of trades occur. We will be proposing legislation very soon to strengthen investor protection by implementing civil liability for secondary markets.

The committee also recommended a change in the timing of the five-year reviews of Ontario's Securities Act -- and we will propose legislation to do that this fall as well. Without a change, we would have to begin the next Securities Act review within a matter of months, before we have had a chance to fully respond to the first review.

Other recommendations we accept relate to basket rule-making, blanket rulings and orders, and the regulation of market participants.

We are acting immediately on seven of the recommendations. For the other half, we will be seeking input from investors and the financial community in the coming months.

The committee recommended the government establish a task force to review the role of self-regulatory organizations, or SROs, as they are commonly known. That would give us an opportunity to respond to those who appeared before the committee and expressed their concerns with the current SRO system. The task force would work toward improving the current system, and in doing so would instill greater investor protection and confidence in our capital market.


The committee also recommended that the adjudicative function of the Ontario Securities Commission be separated from the other functions.

The Five-Year Review Committee and the Fairness -- or Osborne -- Committee confirmed that there is no evidence of bias currently in OSC proceedings. The government has confidence in the OSC, but even the best organizations must strive to improve and be better. We will address these issues in a way that does not compromise the effectiveness of our regulatory system.

The committee has also recommended more formal and regular reporting to the Legislature by the Ontario Securities Commission and by the minister responsible for the OSC. We will be looking hard at ways to develop improved OSC oversight mechanisms that are in line with this recommendation.

To sum up, there will be a staged response to the 14 recommendations put forward by the committee.

For phase one, now or in the very near future we'll move on seven of the recommendations, including the civil liability for secondary market disclosure and on changing the timing of the five-year reviews.

Phase two involves near-term actions such as proceeding with a number of consultations the committee has called for, including a task force to review the role of SROs, self-regulatory organizations.

Phase three -- we'll deal with items where progress is required in the next 12 months, including the OSC accountability mechanism, restitution, and beginning to look in earnest at a separate adjudicative tribunal for the OSC.

Phase four is the ongoing work on new laws to be developed and implemented.

We will continue to improve the structure and substance of our securities regulation system, with a focus on investor protection and maintaining confidence in our capital markets.

The Speaker (Hon Alvin Curling): Responses?



Mr Jim Flaherty (Whitby-Ajax): May I respond to the Chair of Management Board and his comments about the OSC.

Purdy Crawford is an eminent person in the province of Ontario. He worked for five years on this review and presented it to the standing committee on finance and economic affairs. All parties represented in this House presented a unanimous report, and what they get from the government today is a mealy-mouthed lack of commitment and no courage.

The two major recommendations in the report are the national securities regulator -- they didn't even sign the MOU when they had the opportunity to with four other provinces recently. Their commitment -- and here's the big commitment now; after five years of work by Purdy Crawford, here's the government's commitment: They're going to work toward the goal. That's the commitment. They should be ashamed of themselves.

Investors in Ontario expect more of a government that purports to have some familiarity with the importance of securities regulation and investment in this province. We are the only jurisdiction around that has multiple regulators, and we are only a population of 32 million or so in Canada. This is urgent. The issue of capital and raising capital on investment for small and large investors is urgent.

The other important point is about separating the adjudicative function and the regulatory function at the Ontario Securities Commission. The minister says that Osborne, in his report, confirmed that there's no evidence of bias in the OSC. He also recommended that the functions be separated. Why don't you say that to the people of Ontario and then why don't you do it? This work has gone on over five years. We may get to the point that you'll have to give it back to the minister -- no, you can't do that; that's the Royal Group Technologies thing. But you've got that responsibility for the Ontario Securities Commission. You know that there are issues there about the adjudicative regulatory function. You know that it has to be dealt with urgently if you want small and larger investors to have confidence in the Ontario Securities Commission.

I say, move forward on those two vitally important points, as recommended by Mr Crawford and his committee and by the unanimous committee of this House.

Mr Michael Prue (Beaches-East York): It was indeed a privilege for me and an honour to serve on the finance committee. As has already been stated, the finance committee unanimously recommended the 14 recommendations which are the subject of the minister's statement here today.

On that finance committee, from dozens of ordinary citizens -- people in this province who were dissatisfied with how the Ontario Securities Commission is regulated, how it works and what has happened to them -- we heard in evidence that this past year there were 262 files opened on alleged transgressions. These were not small transgressions; these were large transgressions where people were able to take advantage because of insider trading and other, I think, nefarious and uncalled-for actions in order to try and rip ordinary investors off.

The committee has made two key recommendations taken from the body of evidence before it; the first was for a single regulator. There's no question that Canada needs a single regulator. The problem is, how are we going to get there? Canada is not unique in the world, in spite of what some others have said. There is one other country that has many regulators, and that's Bosnia-Herzegovina. But I'm not sure that we want to go there as well. Canada is alone among about 100 industrialized countries that do not have a single regulator.

The second recommendation we made that needs to be acted on sooner rather than later is to separate the adjudicative function. The Fairness Committee under Coulter Osborne spoke quite eloquently in its report on why that needed to be done. It needed to be done not only because must justice be done, but it must also be seen to be done. People have to have confidence that they are getting a fair hearing. When you have it all rolled together, where the prosecutor and adjudicator are one and the same group or one and the same people, it is impossible to say that justice is being done.

I'd just like to conclude by stating that the Ontario Securities Commission is doing, I think, somewhat of the job that they've been hired to do, but we need them to do much more. If you just look at the names this year of the people who have been fined and the amounts of money involved, you'll see that it's enormous. That would include Michael Cowpland, who has been fined $500,000; Glen Harvey Harper, who has been prohibited from acting in the stock exchange for 15 years; Daniel Duic, who was fined $1.9 million plus costs; Andrew Rankin, who has been found to be tipping the scales; and Jonathan Carley, who has been fined about $90,000 for his actions. These are the kinds of things we need to stamp out, and I would tell the minister that we need to do it sooner rather than later.

Hansard Page