With 90 OSC employees making more than the chairman of the SEC, it’s time to look at the Ontario securities regulator’s performance and accountability
Its chair and just one of its vice-chairs together make more than all five members of the U.S. Securities and Exchange Commission combined, including SEC chairman Christopher Cox. Yet the Ontario Securities Commission has become the object of ridicule among investors for acting like something of a dummy to the SEC’s ventriloquist when it comes to prosecuting high profile cases such as Hollinger and Nortel. And the OSC still lags in adopting corporate governance and disclosure standards similar to those in the U.S. and continues to bungle and drag its feet on one major case after another. Just look at how it handled the RIM stock options backdating scandal, for instance.
But, in a move that can only be seen as an attempt to compete with Nigeria in a race to the bottom in investor protection, the OSC is apparently considering ending criminal prosecutions in Ontario courts altogether. It claims the standard of proof may be too high to obtain a conviction. The boo hoo prize is hereby awarded. If the OSC is allowed to carry through with this policy, there would be no jail time for insider trading or other violations of Ontario Securities laws. Talk about a move backwards. If the idea is to attract capital markets miscreants from the U.S. and other jurisdictions and encourage them to set up shop under a more lax regulatory regime, it’s headed in the right direction. But if the OSC’s mandate is still to protect investors, it seems akin to going the wrong way on a very busy superhighway.
One of the big problems with the OSC is that it was made “self-funding” in the 1990s. The change allowed the OSC to become accountable essentially to itself. It even gets to nominate its own members, which it has in plenitude. The OSC has 13 commissioners as compared with the SEC’s total of five (who are nominated by the President and confirmed by the Senate). The SEC regulates a capital market of 300 million citizens. The OSC regulates just for Ontario. Its board sets policy, makes rules, adjudicates hearings and oversees the commission’s finances. That’s already a lot of power for one body. The OSC —not the government— even sets the salary for its own chair, commission members and staff. And it shows. As revealed for the first time by The Centre for Corporate & Public Governance, in 2006 the OSC had a staggering 90 employees who made more than the SEC chairman himself. Even a senior manager at the OSC pulls down $194,000. The previous OSC chair, by the way, roamed the world as part of his official duties and spent thousands on a foray to Kenya alone. How did that protect Ontario investors? Has any elected official ever questioned the OSC’s salary and expense levels? Unlike the sharp Congressional supervision that occurs with the SEC, there is no meaningful oversight of the OSC, which explains why it can indulge in a lavish style of self-governance more resembling Conrad Black than a securities regulator.
I think most investors will agree that this is not the time for the OSC to engage in introspective musings. A more volatile capital market that is capable of turning south overnight needs rigorous and competent enforcement of the rules. And I am on record as far back as 1994 in advocating a single national securities commission for Canada —long before it became the current popular topic that it is. But, since the OSC has opened the door to this discussion by thinking out loud about abandoning criminal prosecutions and seems to be a delayed echo of the U.S. regulator anyway, you might wonder why the OSC doesn’t just find another line of work entirely and leave regulation of the North American capital markets to the SEC, which, when it comes to cases like Hollinger and Nortel, seems to be doing the heavy lifting in protecting Ontario investors.
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