The Ontario Securities Commission’s new investor advisory panel is up and running, introducing what may prove to be a powerful new voice on behalf of investors.

Earlier this year, the OSC announced plans for a new committee charged with providing the regulator with input from the investor’s point of view. The IAP held its first meeting in mid-September and has already produced its first comment on a rule-making initiative, tackling the Canadian Securities Administrators’ proposed new regime for credit-rating agencies. (See story on page 8.)

Based on that first effort, it appears that the IAP may present a useful new voice for investors. In its comment, the IAP makes it clear that its assessment of the proposed rule was driven by the basic question of whether it will adequately protect investors. This perspective is important for regulators to hear, as industry-driven comments typically dominate most rule-making processes in the financial services industry.

Attracting meaningful comment from investors has long been a challenge for regulators. The industry can always make its opinions heard directly through its trade associations and its lawyers. In comparison, retail inves-tors are at a huge disadvantage in terms of the time, money and intellectual capital they can devote to regulatory policy. And, yet, their protection is, ostensibly, the primary objective of much regulation.

In recent years, a couple of investor advocacy groups have popped up to try to do a better job of representing investor interests to the regulators. The Canadian Foundation for Advancement of Investor Rights, headed by veteran securities lawyer and former regulator Ermanno Pascutto, has emerged as a strong voice for investor interests.

The demand for a presence at the OSC itself has also persisted. The commission previously had an investor advisory committee, formed in 2006, which disbanded after its initial two-year term was complete. As a legislative committee report published earlier this year said, investor advocates felt a clear sense of “exclusion” after that original advisory group’s demise. That report recommended that a new investor advisory body be started at the OSC.

The IAP concept has been gaining currency in other parts of the regulatory community over the past couple of years. The so-called “expert panel” that devised the initial design for a national regulator in 2009 called for such a body to be part of any new regulator; and the Canadian Securities Transition Office is taking up the idea as part of its plan.

As well, Britain’s Financial Services Authority has a consumer advisory group as part of its structure, and the U.S. Securities and Exchange Commission formed its investor advisory committee in the summer of 2009.@page_break@Compared with the SEC’s initiative, the OSC’s new IAP has a relatively narrow mandate: to focus on providing feedback on the OSC’s initiatives rather than examining big-picture issues — unless it is asked to do so by the OSC. The IAP is not intended to provide comment on rules or policies being drafted by other regulators, which means it isn’t likely to be offering input on policy-making efforts by the self-regulatory organizations.

However, the IAP’s chairwoman, Anita Anand, associate professor in the faculty of law and School of Public Policy and Governance at the University of Toronto, sees the IAP’s relatively narrow mandate as a strength. It will allow the IAP to focus on and deliberate over specific issues rather than trying to address the seemingly endless list of investor issues.

Moreover, Anand says, the IAP will have an opportunity to raise broader issues and to highlight issues that it believes regulators should be addressing.

The IAP is operating on the principle that Ontario’s inves-tors should be protected as well as investors in other developed markets are, Anand notes. That principle may also lead the IAP to consider recent developments in other markets — such as statutory fiduciary duties and bans on advisor commissions on transactions.

Developing a comment for the OSC’s statement of priorities is likely to be the IAP’s next project. But, Anand says, it has a list of other issues it expects to tackle in the coming months — including the CSA’s recently released concept paper on the regulation of over-the-counter derivatives.

For those projects, the IAP is planning to solicit input from investors directly as it prepares its submissions. To that end, Anand says, the IAP is considering ways to communicate directly with investors throughout the province, including through the OSC’s website as well as through roundtables, town halls and forming partnerships with other investor groups.

Unlike the previous committee, the IAP has a modest budget ($50,000) and a full-time OSC employee dedicated to it. At the same time, the IAP will have to demonstrate its independence from the OSC in order to win credibility among investors.

The IAP’s first submission should go some way toward proving its autonomy, as it concludes that the CSA’s proposed regime for credit-rating agencies is not sufficient to protect investors — not the sort of conclusion that would be expected if the IAP was merely to be a sop to investor advocates.

Whether the OSC is responsive to investor issues will also depend on the tack the OSC takes under its new chairman, Howard Wetston. So far, Wetston has singled out investor protection as one of his top priorities at the OSC — along with improving enforcement and more proactive rule-making.

Wetston, speaking to Ontario’s standing committee on government agencies during its review of his appointment as chairman of the OSC, highlighted the importance of investor protection and indicated his support for the IAP: “The interests of investors must be at the core of everything that we do, and we must err on the side of protecting investors.” IE