The Ontario Securities Commission is turning to a familiar face to take on a very unfamiliar task — running a regulator that is expected to disappear in a couple of years.
The government of Ontario has nominated former OSC vice chairman Howard Wetston to succeed David Wilson as chairman of the commission. Wetston left the OSC in 2003 to become chairman of the Ontario Energy Board. Now, he is returning to an agency that is superficially the same, but in many ways quite different from the one he left. Much of the senior staff that were working at the OSC when Wetston was there the first time have since departed.
The regulatory landscape has shifted abruptly, too. The global financial crisis has awakened governments around the world to the importance of robust regulation. Prior to the crisis, many countries were increasingly drifting toward deregulation; that trend is now clearly being reversed as the crisis has demonstrated how markets can, and do, fail on a grand scale.
Moreover, Canada is once again in the throes of an effort to create a national securities regulator, which Ontario has long championed and is committed to joining. Assuming the national regulator comes to be, Wetston will face the dual challenge of both running the largest, most important securities regulator in the country and preparing it for the transition of being subsumed into a larger, federal agency.
Of course, given the history of failed efforts to create a national regulator in Canada, there is a great deal of uncertainty surrounding that possible transition. (See story on page 8.) The next big hurdle for the national regulator is the constitutional case before the Supreme Court of Canada, scheduled to be heard in April 2011, which will review the federal government’s jurisdiction over securities regulation. But beyond that, there’s the question of whether the political will required to make the national regulator happen will endure long enough for it to get off the ground.
In the meantime, the provincial regulators that expect to be part of this new national regulator will be devoting resources to it; as the biggest player, the OSC will doubtless end up contributing a good share of those resources. The OSC already has one of its two vice chairmen, Larry Ritchie, seconded to the Canadian Securities Transition Office. His term with the CSTO, which began in mid-2009, was due to end Sept. 1 but has now been extended for the remainder of his current term as vice chairman of the OSC, which expires in February 2012.
In addition, the OSC’s general counsel, Monica Kowal, is joining the CSTO to work on developing its initial set of regulations (along with a couple of regulators from the B.C. Securities Commission and the Saskatchewan Financial Services Commission). The OSC’s chief human resources officer also has moved over to the CSTO to help develop its HR strategy.
As the effort to create a national regulator gains momentum, the demand for resources from the provincial commissions are only likely to increase. This means that the OSC will face the dual challenge of jockeying for position within the prospective national regulator, while also fulfilling its mandate to regulate the markets in Ontario. The danger is the former task might undermine the latter.
“The move to a national regulator should not be an excuse for paralysis,” says retired securities lawyer and former OSC commissioner Glorianne Stromberg. “There’s an opportunity for a leader with vision — a champion of investor protection and of fair and efficient capital markets. This is particularly important at this time because market activity is not going to be suspended while Ontario and the rest of the opting-in provinces get up and running in a new structure.”
TheCanadian Foundation for Advancement of Investor Rights also has highlighted the importance of having a strong chairperson at the OSC. In a letter to Ontario Premier Dal-ton McGuinty and provincial Finance Minister Dwight Duncan earlier this year, FAIR Canada warns: “With a dynamic new chair, Ontario can deliver an energized and vital agency with a successful track record of enforcement and investor protection. With a ‘caretaker’ chair, the morale and quality of staff at the agency will likely deteriorate.”
Since the announcement of Wetston’s appointment to the position, FAIR Canada has reiterated its hope that he will bring a focus on investor protection to the job.
While it’s impossible to know what type of OSC chairman Wetston will be, during his years at the OEB he has — in some of his public speeches — supported improved consumer protection and greater consumer input into regulatory policy-making.
“We must protect the interests of consumers and promote the financial viability of the [energy] sector,” he said in a 2008 speech. “We have to ensure that consumers are paying a fair price for what they get, and getting fair value for what they pay for.”
If Wetston can bring that sort of approach to securities regulation, investor advocates should be more than happy.@page_break@Indeed, while the effort to create a national regulator threatens to be a distraction, there is some work to do in restoring the OSC’s reputation. Earlier this year, a provincial legislative committee charged with reviewing the OSC, the standing committee on government agencies, published a report that was critical of the agency.
At the heart of the standing committee’s concern is a sense that the OSC didn’t take enough of a leadership role during the financial crisis, relying too much on the self-regulatory organizations. As a result, the report called on the OSC to “reassess the way in which it exercises its public interest jurisdiction, with a view to improving the commission’s effectiveness and accountability.” The report also recommended that the Ministry of Finance review “the statutory scope” of the OSC’s public interest jurisdiction.
This sense that the OSC has become increasingly distant and aloof over the past couple of years also hangs over the outgoing chairman’s legacy at the commission. Wilson was certainly much more visible when he began the job. He hasn’t been nearly as prominent in the past couple of years.
For example, in Wilson’s first year as chairman, he gave six major speeches at various events. This year, he hasn’t given any. In 2009, he gave two speeches; in 2008, just one (not including obligatory public appearances before the standing committee).
Moreover, a review of the expense reports filed by the OSC’s top executives each year indicates that Wilson was much more actively engaged with the industry at the start of his tenure, and less so in recent years. According to those reports, in Wilson’s first full year on the job, he had 23 meetings that were described as “industry consultations,” as well as a couple of meetings with the media. This year, there haven’t been any. Instead, most of Wilson’s expensed meetings this year have either been with Ontario Ministry of Finance staff or meetings to discuss “commission business.”
This receding public profile — along with the scrapping of the OSC’s annual conference entitled Dialogue with the OSC, no follow-up public meetings with investors since 2007 and the disbanding of the OSC’s original investor advisory committee after its initial term ended (it was recently relaunched) — all have contributed to the sense that the OSC has raised the drawbridge and retreated into its ivory tower somewhat over the past couple of years.
This perception is directly at odds with the sorts of things that Wilson had said in his early speeches at the OSC that the commission should be doing. “We’re making it a priority to bring retail investors inside the circle of policy development,” he said in a 2006 speech to the Investment Dealers Association of Canada, touting the creation of the OSC’s first investor advi-sory committee.
Along with improving the OSC’s engagement with the public, in those early speeches Wilson also had highlighted the need for a national regulator as well as a homegrown response to new U.S. corporate governance rules and improved enforcement.
On these counts, the OSC’s record is mixed. A national regulator remains a work in progress, but the responsibility for creating one really lies beyond the purview of the chairman of the OSC.
The Canadian Securities Administrators, of which the OSC is a part, did come up with its own corporate governance rules. And CSA members have generally seemed more co-operative with one another during Wilson’s tenure, shepherding major national projects, such as registration reform, into reality.
At the same time, this increased co-operation has seemingly come at the expense of policy innovation. While working better together, the provincial commissions haven’t managed to do much of anything that’s particularly progressive or useful for retail inves-tors. In Wilson’s early remarks, he had highlighted the importance of effective restitution for inves-tors, yet there’s been little progress on that front. And seemingly simple initiatives, such as the reform of point-of-sale disclosure for mutual funds, has floundered.
On the enforcement front, performance is always hard to measure. Every provincial commission seems to have its enforcement gaffes, get compared unfavourably with U.S. regulators and criticized for its enforcement record. In that respect, the OSC under Wilson is surely no different; it didn’t do much to enhance the reputation of enforcement in Canada, but it didn’t damage it, either.
One positive contribution that Wilson has made is to highlight the role of the criminal justice system in effective enforcement. Improved co-operation among provincial regulators also may have incrementally enhanced enforcement. However, it’s hard to conclude that Canada’s global enforcement reputation has been enhanced as a result.
Wilson’s tenure at the OSC had the misfortune of coinciding with an unprecedented global financial crisis, and that event hasn’t done any regulator’s reputation any favours. Looking ahead, the big question is whether Wetston will be able to revive and reinvigorate the OSC at a time when it is also being pulled toward what promises to be an extremely complicated arranged marriage with a cast of yet-to-be determined partners.
Can an organization have direction when its time looks to be limited? That’s the task ahead for the OSC — and it’s a big one. IE
OSC facing major challenges
Newly appointed chairman Howard Wetston has the tough task of presiding over what are likely to be the regulator’s final years
- By: James Langton
- November 1, 2010 May 31, 2019
- 12:14