Joseph Groia is a securities lawyer and principal of Groia & Co. From 1987 until 1990, he was the director of enforcement at the Ontario Securities Commission.
Do most Ontarians know that there is more than $100-million of public money sitting in a bank account at the Ontario Securities Commission (OSC) just waiting to be spent on health care, education or legal aid? Unfortunately, they may not as the OSC is badly behind on its statutory corporate-governance obligations (ironically for our capital markets regulator). It is also not clear what Queen’s Park plans to do about it.
Where did the $100-million come from? Under the Securities Act, the OSC is required to pay money it receives under certain orders or settlements into Ontario’s consolidated revenue fund for general governmental purposes unless they designate it to be used for third parties or investor education (the 2(b) Fund). The 2(b) Fund now exceeds $100-million, yet the OSC has not said when or how it plans to spend this enormous amount of public money; nor is there clear transparency or accountability about the process they will follow. What is clear is that the Securities Act allows the Ontario government to take surplus money away from the OSC at any time.
At the core of investor confidence in Ontario is the need for a robust regulatory system and a high-performing securities market regulator. Good securities regulators help to create efficient and competitive markets that encourage innovation and foster growth. In Ontario, however, we need more than just effective rules and policies; we also need a securities regulator that is transparent and at the forefront of good corporate-governance practices. To do that, the OSC needs to be properly overseen by the Ontario Legislature. Regrettably, the OSC and previous governments have failed to satisfy these obligations.
First, the OSC has failed to enter into a memorandum of understanding (MOU) with the Ontario government since November, 2009. This should happen every five years under the Securities Act.
Second, an Ontario government’s review of the OSC operations is long overdue – it was last done in 2003. Under the Securities Act, this should also happen every five years to review securities legislation, regulations, rules and the legislative needs of the capital markets. In November, 2019, after commentators raised concerns about the delay, the Ontario government announced that it would establish a securities modernization task force. The timing for the start of this review has not yet been announced.
Third, as best we can tell, it has been many years since Queen’s Park has reviewed the OSC’s financial statements or its annual reports. The Securities Act requires that a standing committee of the Legislative Assembly regularly receive a report from a review committee, hear comments and make recommendations to the Legislative Assembly. This was last done in 2004 by the Standing Committee on Finance and Economic Affairs.
We believe that the most important shortcoming of the OSC is its failure to set up an independent adjudicative body that will hear cases brought by the OSC staff. In 2004, an expert committee under the leadership of retired Justice Coulter Osborne urged the OSC to do exactly that – and we are still waiting. Why doesn’t the OSC seem to care that it is seen by many as still unfairly using a home-court advantage; something that much of Bay Street whispers about because saying so too loudly could harm their relationship with their regulator.
Good corporate governance mandates the clear oversight of processes and practices of a regulator such as the OSC. This, in turn, promotes public confidence and the public interest. I believe that the power and discretion afforded to the OSC can only be credible when there is effective government oversight that ensures the OSC’s accountability and transparency. Given Ontario’s current budget shortfall, we all should be concerned about if, when and how the OSC will spend $100-million of our public money. At the very least, we can hope that Premier Doug Ford or Minister Rod Phillips will read this and take action to ensure that the OSC starts to meet all of its obligations to the government and that this money is put to better use than just sitting in an OSC bank account.