A Message from the Chair

The end of this fiscal year marked the completion of my first term as Chair of the Ontario Securities Commission. During the past five years, the staff and Board of the OSC have demonstrated the kind of strong leadership that enables us to provide better protection to investors, and to foster fair and efficient capital markets and confidence in their integrity.

Looking back, we were initially focused on making use of our newly acquired rule-making authority to convert approximately 25 to 30 policies into rules each year. We were also busy adding new resources to improve compliance and respond to issues created by new technologies and expanding markets, particularly among retail investors. These new resources were dedicated to strengthening our infrastructure and building a first-class management team. Notably, we put critical systems and processes in place such as enforcement case evaluation and case management systems, risk-based prospectus reviews and stakeholder surveys to name a few.

During this period, we more than doubled the number of staff in our Enforcement Branch. As a result, we have succeeded in working with market participants to re-establish a culture of compliance on the Street.

Over the next few years, we continued to transform policies into rules, albeit at a slower pace, while using our new resources to more effectively regulate our markets. However, the U.S. financial reporting scandals had a sudden and dramatic influence on our agenda. There was little doubt in our minds that the crisis in confidence that hit U.S. markets in the wake of Enron, WorldCom, Global Crossing and other failures was having an impact on Canadian markets.

We took a leadership role by quickly recognizing this reality and the significance it could have for the Ontario market and all of Canada. We recognized that the U.S. reforms contained in the Sarbanes-Oxley Act represented a fundamental change in the way corporations would be governed, securities markets would be regulated, and enforcement actions would be taken.

New Tools Increase Investor Confidence

The Ontario Government has shown exceptional leadership by introducing amendments to the Securities Act, providing us with the tools to correct some flaws in the system and to rebalance some of the incentives. The legislation gives us the authority to develop rules that will be as robust as those in the Sarbanes-Oxley Act. These rules, which concern CEO/CFO certification, auditor oversight and the role and composition of audit committees, will help us to restore investor confidence in our capital markets.

The Way Ahead

With most of the intensive work relating to rule-making and investor confidence now behind us, we have an opportunity to address the other major challenges facing our capital markets. We are identifying the big picture items on which we need to focus, allocating resources to analyze problems and develop solutions, and working closely with the industry and other market players to make needed changes. This process will enable the OSC to move ahead of the curve as the markets develop and business models change.

This is a time of opportunity to bring the OSC vision to life by pursuing several broadly based goals. We will continue to reduce red tape, with emphasis on updating regulation to better reflect modern realities, for example, focusing on the provision of advice rather than simply the trading of shares.

Building Momentum for a National Regulatory System

There are many and compelling priorities for us to concentrate on, with Canada’s need for a national securities regulatory system near the top of the list. Remarkably, Canada is one of the few countries in the world that does not have a national securities regulator. As a result, our system of 13 separate provincial and territorial securities regulators creates a lack of uniformity and a multitude of decision-making voices. This patchwork quilt of regulatory requirements makes for a system that is expensive, complicated and inefficient.

While continuing to pursue the goal of a national regulator, we are working with other jurisdictions to improve the existing system by harmonizing securities law across the country through the Uniform Securities Legislation project. Additionally, there are two other promising initiatives currently underway. Provincial ministers responsible for securities legislation have created a committee that is developing ways to improve harmonization among securities regulators, such as a “passport” registration system. In addition, the federal ‘Wise Persons’ Committee is asking Canadians to focus on fundamental issues in market regulation. We hope these initiatives will be complementary.

Mapping Out a Course of Action

As I look to the future, I am confident that we are well on our way to mapping out a course of action for the next five years that will serve our markets well, allowing them to grow and prosper, and to inspire investor confidence.

I would like to thank our dedicated staff and Commissioners, who have proven their ability to deal with complex issues, devise solutions acceptable to the marketplace and implement them. I particularly want to thank Vice-Chair Howard Wetston, who is leaving the Commission to become Chair of the Ontario Energy Board. Howard has been an integral part of the progress that the OSC has made during the past five years. His wise counsel will be greatly missed.

We have many more challenges ahead of us and I look forward to working with the OSC team and our stakeholders to start solving these very important issues.

"David A. Brown"
David A. Brown, Q.C.
Chair