Dec. 08, 2021 - Toronto - Ontario’s Auditor General (AG) completed a Value-for-Money Audit of the Ontario Securities Commission (OSC), released on December 1 with hard hitting conclusions of political interference and “intense” industry lobbying that led to investor harm.
In just four years, the AG calculated this harm cost Ontario investors “an estimated $13.7 billion in commissions” paid to the financial services industry based on unfair fees known as Deferred Sales Charges (DSCs) and trailing commissions. FAIR Canada has called repeatedly for these fees to be fully banned, as was done in the UK and Australia beginning in 2012.
Jean-Paul Bureaud, Executive Director of FAIR Canada, said he’s not sure what is worse for Ontario investors, “the fact that it took so long and so much public outcry to protect them from these unfair fees, or that the Ontario government and OSC both seem unconcerned with the AG’s findings.” He added: “This report raises disturbing questions about public accountability and undue influence, including whether the agency created to protect investors in Ontario is able to do its job.”
As the AG’s report said, the OSC “has proven to be vulnerable to political interference, which risks undermining its independence and impartiality.”
Where do we go from here?
The vague and non-committal response to these findings in the AG’s report from the OSC and the Ministry of Finance suggests a sense of complacency rather than urgency.
For example, regarding undue industry influence, the OSC simply points to its existing public consultation process, implying that no real changes are needed. And on political interference, the Ministry simply states it will “consider” the AG’s recommendations aimed at fixing this fundamental problem.
For investors, the failure to unequivocally commit to substantial changes suggests that investor protection is now less important in Ontario than in other jurisdictions.
FAIR Canada, an advocacy group for investor rights, calls for Ontario to implement all of the recommendations in the AG’s report. In addition, we call for the following actions:
1. Lift the veil of silence
The AG’s report reveals that in September 2018, the government quietly imposed a requirement that the OSC “pre-clear” all proposed and final investor protection policies with the Ministry. This represents an unprecedented change in Ontario, making the Minister’s Office the silent arbiter of what is good for investors, not the public agency responsible for protecting them. A genuine commitment to transparency and accountability requires a full reporting of every Ministry pre-clearance decision made since September 2018. Regaining public trust and confidence in the rule-making process demands it.
2. Build up investor advocacy groups
We all know that the industry has far greater resources at their disposal than most other stakeholders. Independent investor advocacy groups can, given enough resources and funding, be an effective counterweight to the influence wielded by highly resourced and professionally organized industry lobbyists. We need to do more to level the playing field.
To help shift the balance, the OSC should allocate increased funding from its Designated Fund to independent investor-focused groups. As reported by the AG, the Fund is under-used and only a small percentage is allocated each year, particularly to independent investor advocacy groups like FAIR Canada (which currently receives an allocation from the Fund.)
3. Keep pace with investor protection leaders
When it comes to protecting investors, the AG cites several examples where Ontario has fallen behind other jurisdictions like the UK, Australia, and the European Union. This includes failing to create an overarching legal duty for advisors to put their clients’ interests ahead of their own, and stopping short of fully banning hidden “trailing commissions” from investment products.
Ontario needs to be a leader in promoting and implementing needed investor protections to attract investors, including foreign capital. The AG’s report presents an opportunity for the government to demonstrate that it can rise to the challenge. Ontarian investors deserve nothing less.
About FAIR Canada
FAIR Canada is a national, independent charitable organization dedicated to being a catalyst for the advancement of the rights of investors and financial consumers in Canada. It advances its mission through outreach and education, public policy submissions to governments and regulators, and proactive identification of emerging issues. FAIR Canada has a reputation for independence, thoughtful public policy commentary, and repeatedly moving the needle in the interests of retail investors and financial consumers.
For Further Information Contact:
Executive Director, FAIR Canada