New OSC initiatives

The two most fundamental changes that will come out of the new plan will be the creation of a new research group at the OSC to provide a more analytical basis for its policy-making efforts and the establishment of a new Office of the Investor, which will aim both to enhance the OSC’s engagement with investors and inculcate investor protection into the fabric of the regulator.

The OSC hopes that its strategic plan will result in regulation that has a better grounding in data and evidence, is more focused and forward-looking, and carries a greater devotion to investor protection — and that, ultimately, this results in better regulation.

The OSC envisions a three-year plan, which it will begin rolling out at the beginning of its new fiscal year in April. The new investor office will be launched right away, with the other initiatives to follow soon thereafter.

The impetus behind the decision to create a strategic plan is the desire to make the OSC a more effective regulator in the face of rapid market change, says the OSC’s chairman and CEO, Howard Wetston: “To do that, we really needed to roll up our sleeves; we really needed to engage ourselves in an exercise of thinking about who we are, what we do and how we do it.”

Wetston sees the resulting strategic plan as “an opportunity for this commission to do its job of regulating its markets in a more effective, efficient manner.”

Although this new strategic plan will be used to set the direction for the OSC for the next few years, it also represents a vision for regulators, generally. The plan was actually formulated when there was still considerable hope that a national securities regulator would soon come into being.

The work to develop a strategic plan for the OSC — which had involved benchmarking the OSC against other leading securities regulators around the world, extensive internal consultation among OSC staff and external consultation — began last summer, when the federal government’s bid to create a national regulator was in full swing. The surprise decision by the Supreme Court of Canada in late December effectively had torpedoed the concept of a national regulator.

However, had the national regulator moved ahead, the OSC’s strategic plan is the vision the OSC would have championed within the new organization.

“We think that all of these strategies are very supportable,” says Maureen Jensen, executive director and chief administrative officer with the OSC, “regardless of whether it’s a provincial securities regulator or a national one.”

In the wake of the SCC’s decision, however, the OSC is now going to have to carve this path alone — and that can be tricky within the existing regulatory landscape, in which the priorities of different jurisdictions often clash, leading to regulatory gridlock.

Still, Wetston is hopeful the OSC’s new strategic initiatives won’t affect its relationship with the rest of the Canadian Securities Administrators: “Making us better at our jobs should do nothing except improve the dynamic.”

At the same time, he stresses, this plan is all about what’s best for Ontario’s capital markets: “If we can do some heavy lifting, do some good work and come out with some good research or analysis, my hope is that other organizations will look at that positively rather than looking at it as if, in some way, we are trying to run the show — because that is not the case. We have enough to do here in Ontario.”

Indeed, Jensen notes, the strategic plan is largely a response to the changes that have taken place in markets in recent years, and the ever-ballooning regulatory agenda that has followed.

Regulators increasingly are faced with complicated, new market structure issues, technological developments (such as high-frequency trading) and a constant flow of complex, new investment products — along with demands that the regulators tackle new topics, such as over-the-counter derivatives markets and systemic risk.

With all of these regulatory imperatives piling up, the OSC’s strategic plan is an effort to prioritize and focus on its most important initiatives. “Regulators don’t have to look for business; they don’t need a strategy to get business,” Wetston points out. “Business comes to them.”

Given that reality, he says, it’s the OSC’s duty to utilize its resources to deliver the highest-value regulation while fulfilling its public-interest mandate.

One of the primary strategies to maximize the OSC’s value will be the building of a new research group to ensure that regulatory policy is based on sound, impartial data and that the regulator has an independent view of the issues.

Wetston observes that there’s just not a lot of original research being done in Canada on regulatory issues, compared with the U.S. and Europe. It’s a relatively small market — and the capacity just isn’t there.

So, as the OSC is Canada’s largest securities commission, Wetston wants the OSC to take the lead in producing fundamental research for the Canadian market: “It will shape our thinking and our understanding of the issues, and allow us to have a more independent view.”

Jensen adds that this sort of research also will help the OSC foresee possible, unintended consequences of proposed policy initiatives and allow the regulator to anticipate looming regulatory issues.

Developing the research function that the OSC has in mind isn’t going to happen overnight, however. “It’s going to take us years to do this,” Wetston says, “to have it functioning at the level we envision. But we have to start.”

At the same time, the OSC also has decided that it must make it clear that investor protection is central to its work. To that end, it’s creating a new Office of the Investor, which will have a seat among the OSC’s executives and will report to Jensen directly.

“This is going to be a branch, just like any other,” Jensen says. “It’s going to focus on investor issues and investor input, and it’s going to make sure that inves-tor concerns are considered in all of our policy and operational initiatives.”

Jensen stresses that the investor office won’t replace any of the OSC’s existing investor initiatives, such as the investor advisory panel or the investor education fund, but will help co-ordinate that work better while also “giving a full operational face to investor issues on a day-to-day basis.”

Jensen notes that, during the OSC’s internal consultations, staff had called for investor issues to be given more prominence within the OSC. And so, Wetston says, the regulator has decided that it’s time to “have a group of people that are really focused on those issues as their day job, not just as part of their job.”

In addition, the OSC will develop a new policy co-ordination committee, which will include representatives from the new research and investor branches, in order to better prioritize its policy work. A new emerging risk committee will be established to work with the research group in an effort to foresee developing risks.

“Each of these things, on their own, couldn’t achieve the kind of change that we’re looking at,” Jensen says. “That’s why we’re launching them together, so they interact — the research group supports the investor office, the investor office supports policy prioritization — so it all fits together.” IE