THE ONTARIO SECURITIES COMMISSION (OSC) is hosting a series of unprecedented policy hearings in June that could set the stage for the fundamental transformation of retail investment regulation in Canada in the years ahead.
In the next several weeks, the hearings will air out the critical issues of fiduciary duty, mutual fund fees, prospectus exemptions (including a possible new “crowdfunding” exemption) and enforcement reforms (most notably, the potential use of “no contest” settlements).
The issues under consideration in these hearings are essential to both retail investors and the financial services industry. The policy decisions that come as a result could lead to meaningful changes in regulation, with wide-ranging implications for both the industry and investors.
“June is shaping up to be a critical month in investor rights,” says Ermanno Pascutto, executive director of the Canadian Foundation for Advancement of Investor Rights (a.k.a. FAIR Canada), the Toronto-based investor advocacy group.
The OSC’s roundtable on the issues raised in the Canadian Securities Administrators’ (CSA) consultation paper on the structure of mutual fund fees is slated for June 7.
A few days later, on June 11, another roundtable will examine possible new prospectus exemptions, including a controversial crowdfunding exemption, designed to help facilitate raising capital for startups.
Less than a week later, the OSC has scheduled a policy hearing for June 17 to consider various enforcement initiatives that were proposed in 2011, including the contentious idea of introducing “no contest” settlements.
And, on June 18, the OSC will begin a series of hearings to examine the question of whether to introduce a statutory “best interests” standard for financial advisors.
The same day, the OSC will host a session geared toward investors and investor advocates.
A week later, on June 25, the OSC will hear from the industry.
And it’s planning a further session in July, which has not been scheduled at this point, during which the regulator aims to bring together investors and representatives from the industry.
Bringing together investors and the industry lies at the heart of all these meetings. The ultimate goals are to help the two sides understand each other a bit better, to give regulators greater insight into their respective positions and, hopefully, to move the policy-making process forward as a result.
“There’s no question that what we’re talking about here are key initiatives,” says Maureen Jensen, executive director and chief administrative officer with the OSC. “[These initiatives have generated a lot of interest, and will have a lot of impact on both sides – on both investors and the industry – so, it’s really important to engage in more than just written positioning.”
Engaging the two sides of a particular policy debate may help the regulator narrow down the policy options and push along the decision-making process, Jensen says: “The whole purpose of this [consultation exercise] is to engage in a more nuanced conversation, one that is better informed than just individual binary choices, and then to be able to move forward – to talk about the next steps, the choices that we’ve ruled out or the two or three areas that we’re going to move forward in. But we’re definitely going to [achieve] progress.”
Although the OSC is hosting all of these events, the policy implications are not simply limited to Ontario. Two of the issues to be examined – fiduciary duty and mutual fund fees – are national issues that stem from CSA consultation papers that were published late last year. The crowdfunding question is on the radar of several securities commissions, not just the OSC’s. And, although the proposed enforcement initiatives are for Ontario only, a move to use “no contest” settlements would surely influence enforcement throughout the country.
Moreover, the CSA suggests that other jurisdictions may undertake their own public hearings on the fiduciary duty and mutual fund fee issues. However, none have been scheduled so far.
Richard Gilhooley, communications officer with the B.C. Securities Commission, says that regulator will wait to see what comes out of the OSC’s hearings before deciding whether to host its own meetings on, for example, the fiduciary duty issue.
The OSC may hold further hearings, too. On the mutual fund fee issue, for example, the OSC is considering the prospect of further roundtables in the autumn.
Although each of these issues already has been subjected to the regulator’s normal comment process, the OSC believes that in-person hearings are vital when it comes to such significant matters that prompt strongly held, opposing views.
Jensen sees several advantages to live consultations: “What you get is the ability to probe deeper into why [participants] have taken certain positions, and what is informing their positions.”
It also helps to distinguish positions that are advanced out of self-interest, she adds, vs genuinely differing views on the right thing to do.
“And it’s important,” she suggests, “to bring together the two sides of a debate and to have that debate. It’s hard to make people listen and understand the other side just through the written word.”
The OSC is packing all of these sessions into a relatively short time frame in order to get them in before the summer vacation season starts – when it will become hard to get influential players from the industry, the investor community and the regulators themselves around the table at the same time.
Some of these debates surely will be resolved sooner than others. The question of whether to introduce “no contest” settlements, for example, is an issue that has been hanging around since October 2011, when the OSC first proposed it. Now, there’s hope that the public hearing will enable the OSC to put the issue to bed finally.
For issues that are more complicated, and which may have greater implications – such as the fiduciary duty debate and the mutual fund fee question – those hearings aren’t likely to be determinative; but the OSC is hoping, at least, to advance the debate.
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