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The most recent OSC draft statement of priorities sounded alarms for us.Melissa Tait/The Globe and Mail

Ken Kivenko is President of Kenmar Associates, a consulting service, and an investor advocate. Ed Waitzer is a lawyer and former chair of the Ontario Securities Commission.

In 1994, during the tenure of one of the authors as Ontario Securities Commission chair, the provincial government conferred rule-making authority on the OSC. In return, the commission agreed to a more robust accountability regime, including requirements to publish, for public comment, proposed OSC rules, alternatives considered and a cost-benefit analysis of the proposals.

Increasingly, however, the OSC appears to be moving away from the spirit of such accountability, crafting rules with less input and oversight. Over time, this threatens public confidence in the integrity of the OSC’s governance practices.

Over the past year, the OSC (along with other Canadian securities regulators) published for comment two related proposals to implement an “access equals delivery” (AED) model, which would substitute the issuance of a news release and posting of disclosure on a securities documents website for actual notification of individual investors of certain required corporate and investment fund disclosures.

The proposals ignored the OSC’s own market research (and that of others), which suggests that, for the vast majority of retail investors, access does not equal effective delivery. Nor does it support good investor outcomes.

The proposals also ignored initiatives being taken in other jurisdictions to improve the investor experience through automatic, digital delivery of notifications and disclosure documents to investors in formats that are more accessible and engaging.

Moreover, the proposals for the AED model appeared to themselves contravene long-standing accountability requirements. The proposals were issued without any significant cost-benefit analysis or consideration of alternatives.

Very few stakeholders responding to the proposals suggested that AED will improve consumer protection or market integrity, let alone contribute to a more modern and effective disclosure regime. The stated objective of the AED proposals is cost reduction (something corporations and investment fund managers understandably support).

Yet the rush to implement AED, aside from being contrary to the clearly stated preferences of investors, is likely to stifle the implementation of much more cost-effective technology solutions.

The comment period for the AED proposal with respect to investment fund issuers’ continuous disclosure filings closed late last month. You can imagine our disappointment, then, to read in the OSC’s draft statement of priorities for the coming year, the commission intends to publish final rules to implement such an AED proposal – an intention formed before an evaluation of the comments received on the proposal.

While this may be an extreme – or careless – example, the underlying concern is broader. The OSC’s accountability regime has long been extensive. In addition to publishing proposed rules and associated information, there is also a potential republication for a second round of comments. The OSC has also published for comment, and then an intention to implement, an annual statement of priorities.

In both instances, the OSC was instructed to pro-actively consider a broad range of public input in the development of its priorities and policy initiatives.

Now, increasingly, the OSC issues “guidance,” rather than subjecting a policy initiative to the discipline of a meaningful public comment process. Cost-benefit analyses have become perfunctory, at best. Investor comments (including from the OSC’s own investor advisory panel and Continuous Disclosure Advisory Committee) and empirical investor research are often ignored in an effort to advance the cumbersome process of co-ordinated rule making among the various provincial and territorial securities regulators.

Rule-making proposals are ultimately subject to the discipline of an Ontario ministerial review process. Hopefully, the Minister of Finance will urge the OSC to “measure twice, cut once” when it comes to “tailoring” policy proposals, including those concerning AED.

The implications of failing to do so are becoming increasingly apparent. If the OSC fails to pay more than lip service to meaningful accountability for policy development, stakeholders will become less motivated to provide their considered input, except when it serves their narrow self-interest to do so. Ultimately, the robustness of the OSC’s rule-making processes will decline and its effectiveness will be impaired.

It has been almost three decades since the current rule-making regime was introduced. The most recent OSC draft statement of priorities sounded alarms for us.

Perhaps it’s time for an independent task force to be appointed to review and report on current rule-making practices (including the manner in which the OSC determines its priorities), to ensure that they continue to be fit for their purposes and serve the public interest.

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