News & Events
Remarks by David Wilson
Chair, Ontario Securities Commission
Quarterly Meeting of the
Investment Dealers Association of Canada
Toronto
January 17, 2006
Check against delivery
Thank you for inviting me to address this meeting of the Investment Dealers Association of Canada. I’m very pleased that Minister Gerry Phillips is here tonight. Since taking on the job of OSC Chair I’ve found that one of my biggest assets has been the time and interest that the Minister gives to securities regulation, and the priority he gives to regulatory issues. That’s a big plus. Minister Phillips has shown tremendous leadership, particularly in promoting a harmonized and simplified system of securities regulation for Canada.
I’m honored by the attendance of a number of other distinguished guests. I’m pleased that Governor David Dodge of the Bank of Canada is here. I was glad to get the chance to chat with him earlier. Not only is he very astute – but when the fellow who signs Canada’s currency has something to say, let me tell you, I’m all ears.
David Dodge is a very unique public servant. He has been entrusted with both the task of helping to direct Canada’s fiscal policy as deputy minister of finance and in his current role of guiding our monetary policy as Governor of the Bank of Canada – a rare and well-earned distinction. David has also voiced his support for an effective and efficient securities regulatory system and the important role it plays in promoting confidence, competitively-priced capital and financial stability.
Tonight, I want to talk about cooperation, between regulators and self-regulators. In particular, I’d like to discuss three areas where it is especially important for us to work together:
First, I want to reiterate my support for self-regulation – a critical part of the regulatory landscape – and congratulate you on your decision to restructure the IDA.
Second, I will focus on the concerns of retail investors, and the importance of bolstering their confidence in market regulation.
Third, I want to touch on what we have to do to strengthen the enforcement of our securities laws and regulations.
All of these issues share a common bond – the need to foster market integrity – both real and perceived. In building prosperity, one of the most important foundations is the ability of individuals to trust strangers with their capital.
Some would point out that more regulation is not always the answer. But practical, well-thought-out, accountable and transparent regulation is always part of the answer. Fostering confidence depends on striking the right balance, and carefully avoiding excessive, unproductive burdens on market participants.
A Step Forward for Self-Regulation
Our capital markets are in a constant state of change, characterized by the continual creation of complex new products and services.
In this demanding environment, I believe that one of the most important tools that we possess is credible self-regulation. That’s why I want to commend the IDA membership for being pro-active in addressing the evolution of the organization’s mandate as an SRO.
This change will help enrich your most important asset – credibility − which is also one of the most important assets of the capital markets. For people to have confidence in the concept of self-regulation an SRO must not just be fair and impartial – it must be seen to be fair and impartial.
The IDA has embarked on a process to make significant changes in your organization. But there are parallel external initiatives that could contribute to enhancing the SRO framework.
The IDA’s vote to clarify its mandate follows a recommendation in October 2004 by the Ontario Legislature’s Standing Committee on Finance and Economic Affairs. The Committee urged the provincial government to establish a task force to review the role of SROs. In the meantime, the Canadian Securities Administrators have launched their own SRO Oversight Project.
This CSA group is headed by OSC Vice-Chair Susan Wolburgh Jenah, who is here tonight. The Project has worked closely with the SROs and the TSX, represented here tonight by Richard Nesbitt. It’s expected to release a draft report with preliminary recommendations by the end of March.
Retail Investors
A second area in which cooperation is crucial is ensuring that retail investors have every reason to believe that our capital markets represent a fair investment opportunity.
The IDA’s pending restructuring will provide an incremental boost to public confidence in the self-regulation model. But none of us should view this as the final step on the path to getting us where we want to go.
I think it’s fair to say that we both have a lot of work to do. We saw an illustration of that last spring, with the Investor Town Hall, hosted by the OSC with participation by the IDA and other agencies. Four hundred retail investors took the opportunity to express their views – and vent their frustrations. They were not sure that anyone was on their side. Sometimes they felt like they were going up against Goliath – without a slingshot.
Many investors at the Town Hall meeting indicated they see the system as too complex. Too many said they are not sure where they can go for help in pursuing a complaint. Too many said they tried to take advantage of the system – only to get lost in its maze.
From what we heard at the Town Hall, one of the things that is especially important to retail investors is an effective means for dealing with disputes with registrants − in a fair, affordable and expeditious manner.
We’re making it a priority to bring retail investors inside the circle of policy development.
The OSC has recently established a new forum to address the concerns of retail investors, the Investor Advisory Committee. As I mentioned, partnership is crucial, which is why both the IDA and the Mutual Fund Dealers Association have been invited to send observers to future committee meetings.
The Committee is chaired by Eric Kirzner, professor of finance at U of T, who is also with us tonight. All 11 members were selected based on their experience investing in capital markets, knowledge of securities issues, and experience representing retail investors on a broad scale. They will hold their first meeting at the end of this month – and they’ll zero in on priority concerns of retail investors.
We’re determined to ensure that when aggrieved investors call the OSC to find out where to take their case, they get an answer that meets their needs – an answer they can understand. That’s why we’re updating our brochures explaining our complaint procedures, and our website – to make them more user-friendly. We’re taking a good, close look at our Inquiries & Contact Centre, to ensure we take a more pro-active approach to communicating with the public. Every investor with a complaint deserves to get referred to the right place.
Of course, not every complaint will have merit. But it is vital that anyone with a complaint believes there is a place to turn for a just, equitable and expeditious result. Investors must be able to feel that they can achieve a resolution that is both fair and timely.
In addition, the Government of Ontario is committed to exploring affordable and timely ways for aggrieved investors to seek restitution. This follows up on the Standing Committee’s recommendation that the Government work with the OSC to establish a mechanism that would allow investors to pursue financial redress. The Standing Committee said it believes that investors, especially retail investors, need practical remedies when they suffer a loss due to a violation of securities laws, policies or rules.
Addressing the needs of retail investors must take into account new products. A good example of that is the hedge fund market. Hedge funds have recently extended their reach towards the average investor − investors who may not have the time, expertise or resources to apply the appropriate degree of due diligence.
The IDA’s paper on hedge funds last May helped to make clear the critical importance of this issue. The CSA is currently considering measures to ensure that hedge fund managers provide full, fair, accurate and timely information to their investing clients. And that the distributors of hedge fund products rigorously comply with investor suitability rules, which of course include understanding the complex provisions of the products that they sell.
All of this is crucial to fostering market confidence. We all must send a loud and clear message that we do not treat honest retail investors as second-class citizens. The future of your industry depends on it. So does the future of the capital markets in this country.
Enforcement
As I mentioned, a third area where our cooperation is important is our collective commitment to prevent, detect and deter market abuses such as theft, fraud and insider trading. That’s especially important to your industry, which ultimately is only as strong as its reputation.
That’s why it’s important to close the historic gap between securities regulation and criminal law enforcement. As David Dodge pointed out in a recent speech to the RCMP “no one policing agency can fight alone against … financial market fraud.”
I enthusiastically support that point of view. When it comes to effectively combating market abuses and white-collar crime, we need the combined efforts of police agencies, the provincial Attorney General and regulators, including, of course, SROs.
The good news is we are making some important progress on the cooperation front. We’re pleased to be working with the RCMP, the IDA, and other regulators on IMETs – the Integrated Market Enforcement Teams. This two-year-old program brings together the authorities who have the responsibilities and the skills to detect and pursue market abuses.
Greater co-ordination among the existing agencies that fight white-collar crime has been given plenty of lip service − more specific actions are needed to improve the effectiveness of securities law enforcement across the country.
Conclusion
I’m anxious to get to your questions, but first let me summarize the main points I tried to make in my remarks tonight.
First, the step the IDA has taken in separating its two historic functions enhances the perception of SROs among our market participants.
Second, to enhance the reputation of our markets for integrity, one of the top priorities for regulators and self-regulators is to jointly raise the bar in terms of protecting retail investors. We at the OSC will do our part; the IDA must do its part, too.
Third, the enforcement of our respective laws, rules and regulations is at the core of our mandates. No single organization can do what is needed without co-operation and communication with other agencies.
Much of what we are seeking to accomplish is so much easier by working together. We share many goals. We have shown that we can cooperate towards achieving these goals. When it comes to ensuring fair and efficient capital markets, one of our biggest assets can be partnership. It’s an asset we must build on, together.
Thank you.
