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The Ontario Securities Commission Should Lead by Example and Improve its Own Governance

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Release Date: September 5, 2002
The Ontario Securities Commission (OSC), a vocal champion of good corporate governance for public companies, may be falling behind its international counterparts in its own governance, says a new study The Governance of the Ontario Securities Commission: Lessons from International Comparisons released today by The Fraser Institute.

"With the OSC playing a larger role in the functioning of capital markets, improvements to its governance can help ensure regulation and regulatory resources work towards enhancing the capital formation process rather than disrupting it," says Neil Mohindra, senior economist at the Institute and author of the paper.

The study compares the governance structure of the OSC with regulators in the US, Australia, UK, and Hong Kong, to explore governance practices that can be adopted by the OSC.

The OSC and International Securities Regulators

There are similarities in governance between the OSC and modern securities regulators in other countries. These include: requirements for companies to submit annual reports, judicial processes for appealing administrative decisions, and a process of public comment for regulators that have rule-making powers.

But significant differences also exist across the regulators examined in the study. For example, in the United States, extensive use is made of the independent General Accounting Office (GAO) in the oversight of the Securities and Exchange Commission (SEC). In 2001, the GAO released nine different reports, commissioned by Congressional oversight committees, of various aspects of the SEC's operations.

In the UK, while the government has the power to commission similar reviews into the operations of the Financial Services Authority (FSA), operational oversight is primarily undertaken through a statutory non-executive committee composed of the independent board members of the FSA.

In contrast, oversight of the OSC's operations has generally been confined to accounting and financial matters.

"As is the case with corporate governance, one size does not fit all for the governance of agencies responsible for regulating capital markets," explains Mohindra. "However, the international comparisons show there is a number of ways the OSC's governance could be improved."


There are a number of steps the OSC could take to improve its governance. For example, it could provide more information on its existing governance practices in its annual report, such as what sub-committees of the commission exist and what their functions are. This would enhance the transparency of the OSC's governance.

The Minister of Finance could take a more active role in the OSC's oversight under the existing legislative framework. For example, the minister could take up a 1988 recommendation of the Standing Committee on Government Agencies to ask the Provincial Auditor to undertake an efficiency audit of the OSC. This type of external review helps ensure that a regulator is directing its resources towards its mandated objectives in the most efficient way possible.

Ontario's securities laws are currently being put through a five-year legislative review. The legislative review provides an opportunity to consider more fundamental reforms to the OSC's governance structure. Consideration should be given to restructuring the OSC more along the lines of the UK's FSA so that the non-executive members of its Board are no longer responsible for exercising the OSC's administrative powers.

In such a structure, a regulatory committee operationally independent of both the commission and the OSC's staff would hold the administrative powers. The independent board members could form a committee to report on the OSC's execution of its responsibilities.

"The quality of governance is an issue that all securities regulators are paying more attention to. By striving towards best practices in its own governance, the OSC can set an example for the public companies it regulates," concludes Mohindra. "It would also enhance the OSC's reputation in international capital markets."