Ontario beefs up securities enforcement in budget, gives OSC new tools

Open this photo in gallery:

The Ontario government is making changes to the rules governing capital markets, giving the Ontario Securities Commission new tools to confront white-collar crime, stop repeat offenders and improve data sharing with other financial regulators.

In response to a Globe and Mail investigation into securities fraud, Ontario Premier Kathleen Wynne vowed in December to examine what could be done to address a series of problems and gaps in securities enforcement exposed in the articles.

On Wednesday, as part of the provincial budget, the Liberals announced the first steps in their plan, proposing new tools that would enhance the powers of the OSC, the province’s capital markets regulator.

In addition to the newly created Serious Fraud Office, the government has proposed new categories of offences – for people and companies found to be in breach of sanctions and for obstructing OSC investigations. The new categories will help financial regulators better target specific crimes and punish repeat offenders more swiftly, the government said.

Under the changes, the OSC will also have the power to automatically reciprocate certain court convictions or sanctions imposed by other provincial securities regulators – and to do so with fewer bureaucratic delays.

The process for issuing administrative penalties to first-time violators would also be streamlined, as would the way information is shared with other regulators. In the past, the OSC has had to seek internal approvals to share data, the government said, which has led to delays.

The specifics of these proposals have not been spelled out, but further details are expected when the government unveils the proposed regulations in full. A spokesman for the Finance Ministry could not be reached late on Wednesday.

“Fair, vigorous and timely enforcement of Ontario’s securities laws is essential to protecting investors and fostering confidence in the capital markets,” the province stated in the budget. “The government plans to propose new tools for the OSC to enhance and expand its existing enforcement activities.”

The Globe investigation into the state of securities enforcement in Canada revealed numerous problems, including a system that allowed convicted fraudsters to reoffend with relatively few repercussions. Interviews with white-collar criminals indicated some had no fear of regulators.

A year-long data analysis by The Globe and Mail, using cases from financial regulators across Canada that stretched back 30 years, found that one out of every nine people found guilty of financial crimes by a securities regulator returned to do it again, suggesting deterrence efforts have not been working.

The investigation found one case in which an offender was issued multiple lifetime bans from the markets, with no effect, and others in which white-collar criminals were conducting new stock frauds immediately after being sanctioned – sometimes while their hearings were taking place.

The data analysis also found the amount of unpaid fines for securities crimes in Canada has surpassed $1.1-billion.

In Ottawa, the Finance department said it has taken note of the investigation and has instigated discussions with some provinces on how to better confront securities fraud. Beyond the changes announced in Ontario, which represents 52 per cent of Canada’s capital markets based on market capitalization, legislative changes at the federal level are also needed, regulators say, in order to send a stronger message to white-collar criminals.

As part of the budget announcement, Ontario said it also plans to establish a regulatory regime designed to reduce the risk of manipulation of financial benchmarks, a move that will align the OSC with recently introduced international requirements. “New rules for benchmarks would improve protection for investors and capital markets against misconduct,” the province said in the budget, though no further details were given.