OSC chair supports IDA split

The new chair of the Ontario Securities Commission says he’s pleased with the IDA’s recent decision to spin off its trade association into a separate organization.

“In this demanding environment, I believe that one of the most important tools that we possess is credible self-regulation,” David Wilson said in a speech earlier this week to IDA members. “That’s why I want to commend the IDA membership for being pro-active in addressing the evolution of the organization’s mandate as an SRO.”

“For people to have confidence in the concept of self-regulation an SRO must not just be fair and impartial — it must be seen to be fair and impartial,” Wilson added.

The split was rubber-stamped by IDA member firms in December. The new trade association, expected to be headed by IDA senior vice president Ian Russell, will retain the IDA name, while the self-regulator — to be led by current IDA president Joe Oliver — will be renamed Capital Markets Regulation of Canada. The changes will take effect April 1.

In his speech, Wilson noted that there are other initiatives underway intended to enhance the self-regulatory framework in Canada, pointing to the Canadian Securities Administrators’ SRO Oversight Project, which is expected to release a draft report containing preliminary recommendations by the end of March.

Wilson said that although the IDA’s move should help boost public confidence in the SRO model, the concerns of retail investors also need to be addressed.

“I think it’s fair to say that we both have a lot of work to do,” he said. “We saw an illustration of that last spring, with the Investor Town Hall, hosted by the OSC with participation by the IDA and other agencies. Four hundred retail investors took the opportunity to express their views — and vent their frustrations. They were not sure that anyone was on their side. Sometimes they felt like they were going up against Goliath — without a slingshot.”

Retail investors are looking for an effective way to deal with disputes, Wilson said, adding the OSC has made it a priority to bring retail investors “inside the circle of policy development,” through the recent establishment of an Investor Advisory Committee. “As I mentioned, partnership is crucial, which is why both the IDA and the Mutual Fund Dealers Association have been invited to send observers to future committee meetings.”

“It is vital that anyone with a complaint believes there is a place to turn for a just, equitable and expeditious result. Investors must be able to feel that they can achieve a resolution that is both fair and timely.”

Wilson also touched on the increasing popularity of hedge funds in his speech, noting that they have recently extended their reach towards the average investor, who may not have the time, expertise or resources to apply the appropriate degree of due diligence.

“The CSA is currently considering measures to ensure that hedge fund managers provide full, fair, accurate and timely information to their investing clients,” he said. “And that the distributors of hedge fund products rigorously comply with investor suitability rules, which of course include understanding the complex provisions of the products that they sell.”

Regulators also need to increase their cooperation in the area of enforcement, Wilson said, to “close the historic gap between securities regulation and criminal law.”

“We’re pleased to be working with the RCMP, the IDA, and other regulators on IMETs — Integrated Market Enforcement Teams. This two-year-old program brings together the authorities who have the responsibilities and the skills to detect and pursue market abuses.”

Still, Wilson said that although greater coordination among the existing agencies that fight white-collar crime has been given plenty of lip service, more specific actions are needed to improve the effectiveness of securities law enforcement across the country.

“No single organization can do what is needed without cooperation and communication with other agencies,” he concluded.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(01/19/06)