The Ontario Securities Commission will be looking to step up the regulation of hedge funds, and protect the interests of small investors, said David Wilson in his first speech as OSC chairman.

Speaking today at OSC’s annual Dialogue conference, Wilson called hedge funds the commission’s “new frontier”. He suggested that as hedge funds have increasingly become products bought by average retail investors, it’s important to ensure that they provide full, fair, accurate, timely information. He said that regulators must consider their responsibility to retail investors as the hedge fund industry brings its sophisticated institutional investing techniques to the retail market.

Wilson reported that securities regulators are considering steps to improve the transparency of hedge fund fees and risks. He noted that this is one segment of the industry where reporting is not mandatory, and transparency is often “non-existent”.

Apart from hedge funds, Wilson said it’s important to ensure that honest retail investors aren’t treated as second-class citizens in the capital markets. “Not on my watch,” he said.

Concerning investor protection, Wilson revealed that it has set up its planned investor advisory committee, and that it will announce its members in the next 10 days.

He noted that it’s important that investors have confidence that the OSC will intervene against those who would abuse their trust and undermine their confidence.

Wilson also stressed enforcement, and the importance of deterrence. He said that the OSC is rethinking its approach to penalties, suggesting that it’s shifting its focus from causing violators to mend their ways after they’ve been caught toward acting as an effective deterrent. He suggested that regulators must view penalties as an opportunity to deliver a message to anyone thinking of violating the rules.

All of this came against the backdrop of Wilson’s comments about the importance of shoring up trust in the capital markets. He noted Canada’s prosperity is based on the ability of people to trust strangers with their money, which is dependent on regulation and the rule of law.

However, he cautioned that regulation involves finding a balance between ensuring fairness without stifling capitalist creativity. “We must regulate, not suffocate,” he said.