Message from the Executive Director

Over the years, the Ontario Securities Commission has endeavoured to lead the way to achieve a balance between providing protection to investors and ensuring market efficiency. In the wake of the U.S. financial reporting scandals, clearly the most important priority the OSC set for itself this past year — and for the foreseeable future — was to re-build investor confidence in our capital markets.

Building Confidence in the Market and in Our Leadership

We analyzed the impact of the American situation in Canada and consulted with market participants. We reviewed the Sarbanes-Oxley Act and developed a coherent, made-in-Canada response that would communicate to all investors, and particularly to international investors, that our regulatory framework is as robust as U.S. legislation.

As a result of the way OSC staff came together from several branches, we developed and published draft rules covering auditor oversight, CEO/CFO certification of financial information, and the composition and responsibilities of audit committees.

Concurrently, we completed a continuous disclosure review of the TSX 100 companies — a major undertaking considering the many other initiatives underway at the time. The resulting report was reassuring for the marketplace. Indeed, the OSC has greatly improved its continuous disclosure capability over the years, to the point that we are on target to meet or better the goal of reviewing all issuers at least once every four years.

Unifying Initiatives

Leadership for the OSC is also defined by our commitment to take a stand on important issues that help to unify the industry and that affect investor confidence in the long term. This commitment was demonstrated by our involvement with the Canadian Securities Administrators (CSA) on several notable initiatives. The first is the Uniform Securities Legislation project to help harmonize securities laws and practices across the country. Our Chair is a leading proponent of harmonization and has accepted a second five-year term in part to pursue our vision of creating a national securities regulator.

Other major accomplishments with the CSA included the launching of the web-based National Registration Database (NRD) for dealers and advisers, and SEDI, an insider filing system.

Achieving Outcomes

Let me just touch on some of the outcomes that were achieved in other areas of the Commission:

• We implemented a new fee rule at the end of the year, which will bring additional cost savings to the industry while at the same time tying our revenues much more closely to our costs.
• We’ve made good progress in the development of our new Fair Dealing Model, with a concept paper to be published during fiscal 2004.
• The Regulatory Burden Task Force had made substantial progress by year’s end.
• We created a new Investment Funds Branch. The staff made excellent progress on a number of issues, including Point of Sale Disclosure and Fund Governance.
• With respect to policy activities, we saw 10 new rules come into effect this year and published seven others for comment.
• Communications staff restructured the Investor Education area to ensure a clear division between OSC staff and the arms-length Investor e·ducation Fund.

Earning Respect in Enforcement

The Enforcement Branch published its “credit for co-operation” policy, which allows market participants to benefit from cooperating with OSC staff during an investigation, while still sending a strong message of deterrence. We also began streamlining some proceedings by using our ability to have settlements approved by the Executive Director.

Our relationship with the RCMP continues to be strengthened. We extended our joint effort by another two years, and we have two additional staff seconded to their Organized Crime Joint Task Force. In fact, we are the first agency that the RCMP has invited to be part of the expanded focus on financial crime announced in the most recent federal budget. We are also increasingly viewed within international circles as being quite accomplished in dealing with money laundering.

Leading by Example

The OSC has grown both in size and profile, and we continue to raise the bar for corporate behaviour. Despite working through a challenging year in the markets, we bolstered some of our own governance practices, including the establishment of an Internal Audit capability. By employing independent auditors to examine our risk control procedures, we have added a new tool to assure our stakeholders that we are working more efficiently and cost-effectively.

Further, we published a paper on our risk-based approach in enforcement, compliance, prospectus reviews and continuous disclosure. As a regulator of a thriving capital market with finite resources, we believe it is imperative to use a decision-making process that helps us select the highest priority, highest risk issues to work on in these areas.

A Culture of Teamwork

The OSC has more than doubled in size over the last five years, to address a lack of resources, and to meet the challenges of a growing and more complex marketplace. We now have exceptional bench strength, and we have created a distinct culture of teamwork. Employee satisfaction levels continue to run ahead of averages for both the public and private sector and have generally increased from year to year. Our goal is to continue to make the OSC a “destination employer”, and we are building on initiatives such as our management training program to achieve that goal.

With the appointment of David Brown to a second term as Chair of the OSC, and the outstanding talent and teamwork of our people, I am confident that we are well positioned to be able to respond to rapid changes and to establish the right balance between reducing regulatory burden and protecting investors.

"Charles F. Macfarlane"
Charles. F Macfarlane
Executive Director