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
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
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
"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