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Prior to 1995, the budgets of the securities
commissions of Alberta and British Columbia were set by their
provincial governments through the appropriation process commonly
used for nearly all government spending. That year, the Alberta
Securities Commission (ASC) and the British Columbia Securities
Commission (BCSC) were given Crown Corporation status, which gave
the commissions the ability to control the fee revenue generated
from their activities and determine their own budgets. The
Ontario Securities Commission (OSC), the Quebec Securities
Commission (QSC) and the Manitoba Securities Commission (MSC)
have since converted as well.
There were calls for the change in the status of the commissions
because it would insulate them from the vagaries of negotiating
appropriations with governments for financing their activities.
In effect, they would be assured the resources necessary to do an
effective job in maintaining the credibility of the securities
markets. As it is now more than five years since the first of
these conversions took place, it is appropriate to assess the
consequences of these changes. Has the removal of a budget
constraint affected the levels of spending undertaken by the
commissions in carrying out their duties? Has it affected the
ways in which they spend their money?
The purpose of this study is to examine these and other questions
about the consequences of the changed status of the commissions
through a review of the behaviour of the ASC, BCSC, and OSC.
Evidence suggests the reduced financial accountability inherent
in the commissions' changed status appears to have worked to the
detriment of low-cost, efficient regulation of the securities
industry.
In our assessment, we have found that since conversion in 1995,
the ASC and BCSC have increased spending on average by almost 20%
and 14% a year. Since its conversion in 1997, spending by the OSC
has more than doubled. A major reason for this explosion in
spending is staff increases. The BCBS and ASC have increased
their staff by approximately 50% in the five years since
conversion while the OSC increased theirs by 67%. Salary growth
was another factor. Average salaries have been increasing at the
BCSC by an average of over 5% per year while at the ASC they have
been increasing 13.5% per year.
Between 1996 and 2000, these two commissions beat private-sector
counterparts in investment intermediaries, accounting, and law in
salary growth. In 1996, the executive director was the only staff
member to receive a salary greater than $100,000 at the OSC. In
2000, 64 surpassed this mark. Senior management at the
commissions are beneficiaries of the salary growth. In 2000, the
salaries of the Chair of the OSC and the Vice Chairs and
Executive Directors at the OSC and ASC were more than double 1996
levels. Comparisons with positions of similar responsibility
suggest salaries at the commissions are excessive. The OSC Chair
now earns 2.6 times the salary of the Chair of the US Securities
and Exchange Commission (SEC).
Despite the higher spending, fees were set at excessive levels
that generated large surpluses. By the end of 2000, the three
commissions combined held over $60 million in reserves despite
transfers to their provincial governments of over $60 million by
the OSC and $12 million by the BCSC. Overall, the conversion of
the commissions into crown corporations was not a success but a
lesson on why bureaucrats should not have independence in setting
budget and salary levels. Little was achieved in that the
commissions had adequate policy independence before the
conversion. The change came clearly at the cost of financial
accountability.
Measures are needed to restore financial accountability. The
budget of the securities commissions should be subject to arm's
length review and approval. The salaries and benefits of the
commission's senior management should be based upon clearly
stated benchmarks of positions of similar responsibility and
authority. The fee levels of the securities commissions should be
set to cover commissions' legitimate expenses over a medium term
horizon. Provincial auditors should periodically conduct
performance (Value-for-Money) audits on securities
commissions.
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