The Canadian Securities Administrators’ (CSA) latest oversight review of the Investment Industry Regulatory Organization of Canada (IIROC) is instructive in the way it throws a spotlight on the importance of regulatory accountability in general.

The CSA regularly reviews the operations of the sector’s self-regulatory organizations (SROs) – IIROC and the Mutual Fund Dealers Association of Canada – to assess their compliance with the recognition orders that vest the SROs with their authority. During these reviews, the supervising regulators get the opportunity to audit the SROs’ work, uncover their weaknesses and confirm their strengths. The SROs are challenged to improve, and their credibility is enhanced.

Unfortunately, the same sorts of processes are absent at the legislative level. The Ontario Securities Commission (OSC) has been brought before a couple of legislative committees over the past decade. But these examinations are not nearly as thorough as are the reviews faced by the SROs. And the results of the OSC reviews are much less satisfying, because their findings often are not followed up on.

Slightly more than 10 years ago, a legislative committee in Ontario concluded that the OSC should give up its adjudicative role, an investor restitution mechanism should be created, and a task force should be established to review the role of self-regulation. None of this has happened.

Another of that committee’s recommendations was that the required five-year review of securities legislation, last completed in 2003, be restarted immediately; even that hasn’t happened. Still another recommendation was that the province design a proposal for a single national regulator. That effort is, of course, still underway, with five provinces (and the federal government) hoping to launch at least half a national regulator by next autumn.

As work on both the rules and the legislation for this new national authority proceeds, it is critical that policy-makers build in much more sound and effective accountability measures than now exist. Without accountability, regulators risk losing their credibility.

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