The OSC reviews its yearly priorities

In the meantime, it’s the regulator’s current statement of priorities that will shape the regulatory agenda for the coming year.

The OSC had released a draft of its annual priorities earlier in the spring, giving the securities industry and investor advocates an opportunity to get their issues onto the regulator’s radar. And although there’s widespread support for much of what the OSC is promising to do, many of the comments on the draft priorities also point to the lack of progress on a wide array of issues that the OSC has pledged to address in the past.

Indeed, the submission by the OSC’s Investor Advisory Panel (IAP) calls for improved regulatory accountability, including enhanced measurement and reporting of regulatory performance. The IAP’s submission notes that many of the OSC’s priorities for last year are repeated this year, and the IAP’s note calls on the OSC to make more concrete progress on some of these issues, such as the introduction of a statutory fiduciary duty for financial advisors.

The IAP’s note also observes that other past priorities seemingly have been abandoned, including the promise to improve investor access to restitution. The note suggests that the OSC should revive those efforts: “In the absence of a national securities regulator, the OSC should take a leading and active role in Canadian securities regulation,” the IAP says, adding that the OSC should be championing issues such as improved investor restitution.

Another area of scant progress that’s drawing a lot of comment involves concerns about shareholder democracy and proxy voting reform. The OSC had initiated a consultation on some of these issues in January 2011; and, again in this year’s draft priorities, the regulator pledges to conduct an empirical analysis of proxy voting problems, review the role of proxy advisors and advocate for the elimination of slate voting and the adoption of both majority voting policies and enhanced disclosure of voting results.

Comments from several financial services firms, including large pension fund managers, indicate that these issues remain a top priority and that the industry is eager to see some real progress in this area. The Canadian Coalition for Good Governance (CCGG), for example, says that the OSC shouldn’t simply be advocating for reforms to shareholder-voting practices, but should be working to “ensure that they are enshrined in Canadian law.” The CCGG’s note says the OSC should be spearheading these reforms along with other regulators and lawmakers.

Similarly, when it comes to overhauling the proxy voting system, several, almost identical comments from pension fund managers (and others) stress the need for an independent review and reform of the existing system. These comments suggest that the regulators have been too reliant for insight on the firms that have a vested interest in maintaining the existing proxy voting system and that the regulators need a truly independent view instead. For example, one comment suggests that improvements to the proxy voting system are “long overdue and are critical to the credibility of shareholders’ votes.”

On that subject, the CCGG note also says that it’s time for action. It suggests that the problems with the system are well known, and it calls on the OSC to take concrete steps in the coming year to address those fundamental failings.

Shareholder democracy issues haven’t been the only ones to inspire a concerted lobbying drive. A demand for more prospectus exemptions has generated an even bigger response. Thanks to a letter-writing campaign organized by the Western Exempt Market Association, about 80% of the more than 100 comment letters filed on the OSC’s draft statement of priorities this year were largely identical pleas for Ontario to adopt the offering memorandum (OM) exemption.

The OSC indicated in its draft priorities that it would consider introducing new prospectus exemptions, in addition to the existing minimum amount exemption and accredited investor exemption – both of which are currently still under review by the Canadian Securities Administrators.

In response, the OSC has received dozens of letters from exempt-market dealers, issuers and prospective investors calling for the adoption of the OM exemption in order to facilitate the raising of capital by small companies.

This is one area in which there’s already been some action. Although the OSC hasn’t promised to adopt the OM exemption, the regulator had announced in early June that it is examining the exemptions that are available in other provinces (including the OM exemption) and in other countries; and the OSC already has struck a new, ad hoc advisory committee to inform those deliberations.

© 2012 Investment Executive. All rights reserved.