Check against delivery

Good morning. Thank you for that generous introduction.

I stand here before you with a certain amount of trepidation. After all, I'm investigating you and the entire mutual fund industry, seeking to find out if you've been operating legally and with integrity.

I feel a bit like the skydiver who has just jumped from a plane at 10,000 feet only to discover that his parachute doesn't work and the backup is also jammed. As he's plummeting toward the ground, he sees a man rocketing upward toward him, looking a little singed. As the two men meet, heading in opposite directions, the skydiver shouts, "Do you know anything about parachutes?" "No," comes the reply, "do you know anything about gas barbecues?"

Hopefully, by the time we have concluded our session this morning, we'll know a little bit more about each other . and both be able to leave the room, uninjured.

I am honored to participate in this official launch of the annual Investor Education Month public awareness campaign. Occasions such as these . when regulators, industry groups and self-regulatory organizations come together in common cause . demonstrate just how much we can achieve when we all work together for the public good. Occasions such as these should also serve to remind us exactly who matters most when it comes to mutual funds. It's not me, as a regulator, and it's not those of you who represent a specific fund company or the industry as a whole. No, the people who matter most are not even here in the room this morning . of course I'm referring to the millions of investors who own units in your funds or shares in your companies.

During the last two or three years, most of those investors have come through slaughter. Individuals saw the value of their portfolios substantially reduced as markets took a tumble from their peaks of March 2000. Of course, such volatility is to be expected. We spend a lot of time telling investors to do their homework, to diversify their holdings, and to stay in for the long haul. There's no question that investors today are far wiser than they ever were before as a result of programs such as Investor Education Month.

So, yes, let's continue to educate investors, but we have another daunting task ahead . one that is even more important . and that task is to regain the full faith and confidence of investors. That is what I want to talk to you about this morning . trust . and what we must do to win back that trust.

My speech today is divided into three parts:

. first, I'll take a look at the landscape and how we've arrived at where we are today;

. second, I'll describe the nature and scope of the probe by the Ontario Securities Commission into the mutual fund industry;

. and third, I'll leave you with some thoughts about where we can expect to go from here.

We Canadians pride ourselves on our cultural and societal differences from Americans, but when it comes to capital markets, we live and work in the same borderless world. For the most part, this is an advantageous position for us to be in. We can enjoy what we regard as a better life style yet still be players in that larger arena. But such easy access cuts both ways. When criminal charges are laid in the U.S., when executives plea bargain and household names are found guilty . all of those activities have a toxic impact on how Canadian investors feel about their own money and their own money managers as the bad news spills north.

The total amount of fines and fees levied so far is approaching US$2 billion. The names involved are hardly fly-by-night firms that no one has ever heard of before. In March, Bank of America and FleetBoston Financial agreed to pay US$675 million in fines and fees to settle fraud charges related to improper mutual fund trading. In addition, regulators took the unprecedented step of ordering the removal and replacement of eight directors serving on the board of Bank of America's Nations Funds. A further two dozen fund companies and brokerage firms are under investigation with more settlements expected. Trust is the essence of any fiduciary relationship and that trust between the industry and the investor was breached because some simple home truths were recklessly abandoned by too many people at the top. Executive larceny and outright greed replaced best practices and good corporate governance. In such a race to the bottom, investors felt angry and rightly so.

What went wrong was aptly captured in a comment I read a few weeks back by Kathryn McGrath, a lawyer and former fund regulator in the U.S, who said this: "In the scramble to survive and make money, some people in the industry forgot about that fundamental principle: It's the shareholders' money, stupid." Mutual fund companies are getting it from all sides, not just from Eliot Spitzer or the Securities and Exchange Commission. Even the legendary Warren Buffet has taken aim at the industry in his latest letter to shareholders. This marks the second year in a row that the Oracle of Omaha has attacked mutual fund companies, most recently that group he calls "lapdog directors" who are supposed to oversee the selection and performance of fund managers. Instead, as Buffet noted, some of those directors were asleep at the switch, suffering from what he called a "boardroom atmosphere" that "sedates their fiduciary genes." Buffet then posed a pretty basic question, "If you don't know whose side someone is on, he's probably not on yours."

To be sure, the business of money management has hardly been alone in suffering a steep decline in public esteem. Steroids in home-run hitters, violence in hockey, scandals in public spending, fabrication of facts by journalists . there's hardly any segment of society that does not seem to be under siege. The difference is this: We can't do anything about those other problems, but we can tackle the question of integrity in business. One of my favorite business villains remains J.R. Ewing, the star of Dallas, the television show that was popular in the 1980s. When someone asked J.R. how he could live with himself, he replied, "It's not hard. Once you give up integrity, the rest is a piece of cake." Let me turn now to the second part of my speech . the ongoing OSC probe of the mutual fund industry. Last year, when the problems in the U.S. mutual fund industry first surfaced, there were those who demanded we take immediate, parallel action. Others said, don't bother, everything's fine, there's no hanky-panky here.

We followed neither of those suggestions. Instead, our approach was this: Get the facts before we react. That is why last November we sent a questionnaire to 105 managers of publicly offered retail mutual funds that trade in Ontario. We did not do so because we had any hard evidence that Canadian firms were doing anything wrong. No whistleblower had come forward here, as has happened in the U.S. Indeed, our investigation would still welcome any insight that might be garnered from such a knowledgeable source. Openness and honesty is to everybody's benefit.

What we sought to do in that November survey was simply to ask about policies and procedures that each firm had in place to prevent late trading and market timing. We asked if there had been any abuses of those policies in the previous two years. If anything approaching abuse had occurred, we further requested more information about such activity and what steps had been taken to prevent recurrences.

We carefully reviewed the responses we received and found a few areas that looked like they'd benefit from further scrutiny. As a result, in February we launched the second phase of our probe. That phase involved asking about one-third of all respondents . as well as some other firms selected at random . for more detailed information. Submission of that data was timely and our statistical analysis is almost complete. The third and final phase of the probe will soon commence and will include, where appropriate, on-site visits by OSC staff.

Let me say how much we appreciate the co-operation we have received, not just from individual firms but also from the Mutual Fund Dealers Association of Canada and the Investment Dealers Association.

Let me also say that this is not a witch hunt, neither is it a fishing trip. But if there is wrongdoing, this probe will uncover it.

While we do not know yet whether we will find anything like the level of illegal practices that have been uncovered in the U.S., we cannot assume that our mutual fund industry is lily-white. For example, although there are procedures in place through FundServ that mean orders cannot be entered after four p.m., the question that needs to be answered . on behalf of all investors . is this: Were all policies and procedures fully and fairly followed? In many ways, the question we're asking of mutual fund managers is age-old. The question I have in mind was posed by Juvenal, the Roman poet, who asked, "Quis custodiet ipsos custodes?" . "Who guards the guardians?"

It's quite possible, for example, that trouble could ensue from what might be called systemic issues. After all, mutual fund managers are basically on the "sell" side of the market. Their compensation depends upon generating fees and adding to total assets under management. As a result, selling more fund units is in the best interests of fund managers. But selling more units may not always be in the best interests of the investor who has handed over her retirement savings. We need to ensure that whenever there is even the slightest whiff of a conflict of interest, it must be the investors' long-term interests, not the short-term gain of the fund manager, that is served.

This structural conflict of interest is the focus of the governance proposal from the Canadian Securities Administrators that is currently out for comment. Known officially as Proposed Instrument 81-107, the topic under discussion is an Independent Review Committee for mutual funds. This committee will bring us closer to implementing a mandatory fund governance scheme designed to manage these potential conflicts of interest. Under the Proposed Rule, each mutual fund manager would be required to establish an Independent Review Committee for its funds. The committee's specific mandate would be to review all matters involving a conflict of interest between the fund's own commercial and business interests on the one hand, and its fiduciary duty on the other.

As a result of public comment previously received, the current Proposed Rule is much narrower than the original concept. I believe this revised approach properly focuses on areas where the Investment Review Committee can add significant value. The Committee is but one step that could take us forward to our goal . restored trust.

We have the Proposed Rule very much in mind as we move into the final phase of our own probe. In so doing, we are carrying out the OSC's two-part mandate, which is worth repeating in this context:

. first, to provide protection to investors from unfair, improper or fraudulent practices;

. and second, to foster fair and efficient capital markets and confidence in their integrity.

As for the OSC probe, obviously I can't say just yet what the precise findings will be because we are not yet finished. When our on-site investigations are complete we will take appropriate action. I can promise you that we will be prudent about what we do. As a regulator, I'm not planning to advocate new rules just for the sake of being busy. Nor am I much interested in what I would call bureaucratic interventionism. In this regard, I take my cue from Mies van der Rohe, the architect of the Toronto-Dominion Centre, whose motto was "Less is more." At the same time, however, I am a realist and an activist. As you are well aware, the OSC has recently taken tough measures on several other fronts that come under our jurisdiction. For example, we have established an enviable record in enforcement. We have obtained jail sentences in four of the most recent five cases where we have sought jail terms. We've cut the average time it takes to complete investigations almost in half, from twenty months to eleven months. As for bringing cases to trial, we've done even better; we've reduced the time involved from fourteen months to six months. In the past few years we've successfully prosecuted more than one hundred separate actions and most of those actions have involved multiple respondents.

We continue to look at ways to improve enforcement, to communicate what we're doing, to achieve tougher sanctions on securities violations and to try to bring together all the different agencies that are involved.

The next step we take will almost certainly involve stewardship. As you know, issues relating to stewardship used to be the purview of the Toronto Stock Exchange but those guidelines are now the responsibility of the OSC. To my mind, the most important aspect of stewardship is the integrity of the CEO and the culture of integrity that is created. The OSC can set the standards and create the environment but it is up to you and other business leaders to establish the appropriate tone at the top. If you fail to follow through with vision, we will act with a vengeance. We have the muscle and manpower as well as the necessary apparatus in the form of continuous disclosure requirements.

It was Marshall McLuhan who said, "The important thing in business is to know what business you're in." By that definition, I believe that you and I are in the same business, the business of building and maintaining public trust. Our aligned interests include investor confidence, transparency in all dealings, fair and efficient capital markets and . but above all . trust and integrity. Those great goals are all about human values. All we regulators can do is set the standards, promulgate a few rules and punish offenders. But you have a responsibility, too, and that role means that you must pay more heed to your fiduciary duties than you do to sales and marketing. Mutual fund managers and boards of directors must constantly keep in mind the best interests of investors, not your own interests or the benefit of a select few. If you can make investors grow rich, you will also prosper. It's when the order gets reversed or the investor gets forgotten, that the industry falls down. After all, managing other people's money is a public trust, not some private prize.

I'd like to think that markets operate in the best interests of everyone, and for the most part, they do. But I am not so naïve as to believe that we don't need rules and watchdogs. The integrity of our capital markets is too important to be left entirely to self-policing by participants. No one suffers more than you do when there's wrongdoing in your midst.

With your help, we can and we will re-establish public trust in financial markets.

With your help, we can and we will ensure fairness and sound ethical practices.

With your help, we can and we will give investors every reason to believe that they are in good hands again.

Thank you. I look forward to your questions.