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OSC to focus on investor protection

|Written By Robert Todd

The Ontario Securities Commission says its priorities for the year ahead include the creation of a panel for investor relations and regulation of over-the-counter derivatives, but an expert suggests many of the agency’s priorities will be curtailed by wrangling among provincial regulators.

The OSC late last month released its priorities for the financial year to end March 31, 2011, which it is required to do by the Securities Act. The regulator identified several top issues for the year ahead, including a stronger focus on investor protection, response to market developments — including the implementation of International Financial Reporting Standards, and a continued focus on “a strong and visible enforcement presence.”

John Macfarlane, co-chairman of Osler Hoskin & Harcourt LLP’s corporate finance group, notes that the commission refers in the notice to the shift to a national regulator.

“We have published our statement of priorities at a critical juncture for the regulatory structure in Canada,” wrote OSC chairman and CEO David Wilson and executive director Peggy Dowdall-Logie in the notice. “The OSC is committed to supporting the government of Ontario and its goal of having a national securities regulator in Canada.”

Macfarlane says while the commission has outlined a strong set of priorities for the year ahead, their execution will prove difficult in light of the tension surrounding the creation of a national regulator.

Priorities such as the exploration of the extent to which credit-rating agencies should be supervised, and investigation of whether the OSC is the right forum for investors to seek remedies, are “spot on,” says Macfarlane.

“But those are issues which really require co-operation, and ultimately consensus, among the Canadian regulators,” he says. “In order to move on any of these fronts, there’s going to have to be uniformity of regulator, or uniformity of approach and agreement among the regulators.”

Meanwhile, Macfarlane applauds the commission’s plans to create an “independent, funded panel with a focus on investor issues.” He has served on the OSC’s securities advisory committee, which is comprised of lawyers who meet to discuss issues they are facing in their practices. Macfarlane suggests the new panel will prove similarly fruitful for the commission.

“The OSC acknowledges that capital markets are experiencing significant structural change, and part of their job is to ensure that regulation keeps up with that, anticipates it, and even gets in front of it in some cases,” he says. “This gives them an extra ear to the street, if you will.”

Jonathan Grant of McCarthy Tétrault LLP in Toronto is eager to see the commission’s changes in the takeover bid area. The notice says the OSC will update the early warning disclosure regime, with plans also for changes to permissible defensive tactics.

“There’s been a fair amount of discussion in that area over the last few years, and some recent decisions of the OSC, and to a lesser extent the Alberta commission, when it comes to, for example, poison pills,” says Grant. “It’ll be interesting to see what they come out with there.”

Macfarlane believes the OSC should have included in the notice a commitment to find ways to give Canadians — primarily institutional investors — simpler access to international offerings.

“We’ve got significant pools of capital sitting in Canadian pension funds that need to be deployed,” he says. “Because of the current compliance regime which requires a lot of paper, it’s very difficult for those sophisticated Canadian investors to participate in, say, a large, blue-chip European company that’s offering its securities.”

He says the extra red tape often prompts top foreign companies to bypass the Canadian market.

“Canadians are effectively in many cases being shut out of investing abroad,” says Macfarlane.

The OSC’s statement of priorities for the year ahead is available online at