New OSC chair sets sights on hedge funds

David Wilson says he intends to protect investors and restore trust in the Canadian marketplace, stressing the need for stronger regulation through a common securities regulator.

In his first speech as OSC chair, at the annual Dialogue with the OSC in Toronto, Wilson said a common securities regulator in Canada would “improve both the efficiency and attractiveness of our capital markets.”

While Wilson did not identify any specific changes he intends to introduce during his tenure, he made it clear that he will look every aspect of the market, specifically singling out corporate governance, mutual funds and hedge funds. The trick, of course, which Wilson recognizes, is making sure the regulatory regime is not cumbersome.

“We must regulate, not suffocate. We must build trust — without adding undue burden.”

It’s clear, however, that he wants to ensure the OSC is seen as proactive, pointing to the regulator’s pursuit of five mutual fund managers, who were charged with market-timing, resulting in the largest monetary settlements in the commission’s history. “We are not stopping at one-time settlements,” he told the standing-room only crowd.

He explained that the OSC is moving towards regulation that would establish Independent Review Committees that would oversee the decisions of fund managers when faced with conflicts of interest.

He later added that timely enforcement and a rethinking of penalties that work to deter violators, rather than to reform their ways after they have been caught are integral. “We must prevent, detect — and deter,” he said.

But while the fund industry has regulations governing its conduct, the hedge fund industry does not. This is another area in which Wilson believes the commission can make a difference.

“Right now, exempt-offered hedge funds is one of the few financial service industries where reporting is not mandatory and transparency is often non-existent,” he said. “As regulators, we must consider our responsibility to retail investors, as the hedge fund industry continues to bring sophisticated institutional investing techniques into the mainstream market.”

He concluded by saying the OSC must continue to close the gap between securities regulation and criminal law enforcement. The creation of the Investor Advisory Committee will help in that regard he said, adding the commission will announce the members of that committee within the next 10 days.

Wilson says his utmost concern is for the average retail investor. “Ontario accepts the preservation of two self-contained, yet dysfunctional markets — a market for insiders and another for outsiders…a market for those who risk their savings and another for those who risk the integrity of the market.”

And the new chair had a succinct message for anyone who might seek to undermine the market: “Not on my watch.”

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com