Crawford committee backs down on recommendation to split IDA functions

(May 30, 2003) A panel of industry experts set up to suggest changes to Ontario’s securities laws has backed down on a recommendation to split the regulatory and trade association functions of the IDA.

In its final report released yesterday, the Five Year Review Committee, chaired by Purdy Crawford, withdrew its original recommendation, instead stating that the IDA be “constantly mindful” of the conflict inherent in self-regulation.

Submissions received on the topic were divided as to whether the IDA’s functions should be separated, the committee’s report says. The IDA, in its submission, said it believed there was “no meaningful conflict beyond the conflict inherent in self-regulation that should concern regulators or investors.”

But the IDA also recognized the potential for the appearance of conflict, and said it should operate with a degree of “organizational distinctiveness,” with firewalls where appropriate.

The Five Year Review Committee also highlighted a submission from the Nova Scotia Securities Commission, which noted that the IDA has improved its regulatory role in the last few years and urged the committee to consider a cost-benefit analysis before introducing such a “radical” change.

Those kinds of arguments appeared to sway the committee. “We are not convinced that the benefits of forcing a split within the IDA would outweigh the costs associated with such a change,” the final report states. “In our view, the original recommendation would occasion major structural change to the IDA and we had little evidence of either the necessity or benefits of such a change.”

However, the committee did suggest that the IDA consider internal changes to the makeup of its disciplinary panels and board of directors.

“As two-thirds of the members of a disciplinary panel are IDA member representatives, there may be concerns about the perceived independence of the panel,” the report says.

“In addition, we note that by 2004, when changes to the IDA’s board of directors are implemented to add more non-member directors, there will still be a majority of non-independent directors. We encourage the IDA to reconsider this allocation.”

On other issues, the committee suggests that the Ontario Securities Commission (OSC) study, on a priority basis, its overlapping roles of making policy, conducting investigations and sitting as an administrative tribunal. Although the OSC’s structure has been upheld by the courts, the committee says there remains a question of whether it “gives rise to perceptions of potential for conflict or abuse.”

The committee also repeated its support of the “urgent” need for a single Canadian securities regulator. “We urge the [Ontario finance] minister to assume a leadership role in working with her colleagues across the country to resolve any remaining barriers to the establishment of a single regulator responsible for Canada’s capital markets activity,” the report says.

Ontario Finance Minister Janet Ecker tabled the Five Year Review Committee’s report yesterday in the provincial legislature. A government committee will review the recommendations and provide feedback to the minister later this year on suggested changes to securities laws.

Filed by Doug Watt, Advisor.ca, dwatt@advisor.ca