Five year review committee final report reviewing the Securities Act (Ontario)


Purdy Crawford, Counsel
Osler, Hoskin & Harcourt LLP

Carol Hansell, Partner
Davies Ward Phillips & Vineberg LLP

William Riedl, President and Chief Executive Officer (Retired)
Fairvest Securities Corporation

Helen Sinclair, Chief Executive Officer
BankWorks Trading Inc.

David Wilson, Chairman and Chief Executive Officer
Scotia Capital; and
Bank of Nova Scotia

Susan Wolburgh Jenah, General Counsel and Director, International Affairs
Ontario Securities Commission

Anita Anand, Assistant Professor
Faculty of Law, Queen's University

Rossana Di Lieto, Senior Legal Counsel
General Counsel's Office
Ontario Securities Commission

Krista Martin Gorelle, Senior Legal Counsel
General Counsel's Office
Ontario Securities Commission

Janet Salter, Lawyer
Osler, Hoskin & Harcourt LLP

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March 21, 2003

Honourable Janet Ecker
Minister of Finance
7th Floor, Frost Building South
7 Queen's Park Crescent
Toronto, ON M7A 1Y7

Dear Minister Ecker:

We are pleased to present to you our Final Report reviewing the Securities Act (Ontario). This Final Report is the culmination of more than two and one-half years of meetings, research and deliberations concerning the current state of securities legislation in Ontario. In May 2002 we published our Draft Report for comment. The comment period concluded in August. We received 45 comment letters; the list of commenters is set out in Appendix B. This Final Report is the result of our deliberations concerning the comments we received on the Draft Report, and our consideration of events subsequent to the date of the Draft Report. The Final Report considers events and legislative reform as of February 28, 2003. A summary of our recommendations is contained in the Executive Summary. A glossary of terms used in the Final Report is found in Appendix A.

Much has happened since the release of our Draft Report. One of the major events was the passage of the 2002 Amendments (formerly Bill 198). We were pleased to see that some of the recommendations contained in our Draft Report were adopted by the Government of Ontario in this legislation.

As you review our Final Report, we draw your attention to our discussions of the following topics:

  1. The need for a single, co-ordinated approach to securities regulation in Canada. It is our very strong view that a nation that commands only two per cent of the global economy suffers daily from a regulatory regime which is comprised of 13 separate regulators. Please see our discussion at pages 29-41.

  2. The strengthening of the enforcement powers of the Commission. We believe that enhanced powers to impose monetary penalties, and the introduction of anti-fraud and anti-market manipulation rules, will encourage enhanced compliance with Ontario securities laws1. In addition, we believe the court should be able to impose increased fines and/or prison terms where a breach has been proven pursuant to the quasi-criminal provisions in the Act2. Please see our discussion at pages 205-254.

  3. The need for enhanced regulation of corporate governance and accountability of public companies. Please see our discussion at pages 168-174.

  4. Accountability and governance of the Commission. Please see our discussion at pages 61-65.

  5. The importance of civil liability for secondary market disclosure by issuers. We support the Government of Ontario's initiative in this regard and encourage other provincial and territorial governments to follow suit3. Please see our discussion at pages 129-133.

  6. The introduction of a system of governance for mutual funds. Please see our discussion at pages 189-203.

  7. How to regulate in an increasingly technological world. The Internet has greatly facilitated communications among people; the challenge for regulators is to determine what public policy considerations are engaged by increasingly sophisticated technologies, and the appropriate regulatory responses. Please see our discussion at pages 88-94.

Certain of our recommendations relate to issues that are already on the agenda of the Commission and/or the CSA, and our recommendations may be considered by the regulators in their current deliberations on these matters. We are also aware of other current initiatives, including the Deregulation Project being undertaken by the BCSC, and the CSA's Uniform Securities Law Project. We suggest that our recommendations be considered in conjunction with these initiatives.

Shortly before our Draft Report was being finalized last spring, Enron Corp., one of the world's largest energy trading, commodities and services companies, collapsed. At that time, the review by regulators and legislators in the U.S. and Canada as to the circumstances surrounding Enron's collapse, focusing in particular on the reliability and transparency of corporate disclosure and the financial reporting process, corporate governance, and auditor independence, was just beginning. While it was unclear what conclusions would emerge from the Enron investigation, we knew that Enron had profoundly shaken investor confidence in the integrity of our capital markets. Since that time, a number of other significant events have occurred:

  1. Other corporate disasters of similar proportion have occurred in the U.S., including WorldCom Inc. and Adelphia Communications Corporation.

  2. In response to the crisis of investor confidence in U.S. capital markets, the U.S. government enacted the Sarbanes-Oxley Act on July 30, 2002. The Sarbanes-Oxley Act introduces sweeping changes to U.S. securities laws to provide greater investor protection and to strengthen the integrity of financial reporting by U.S. public companies. The NYSE and NASDAQ have introduced proposed reforms to the corporate governance practices of their listed companies. The SEC is in the midst of extensive rulemaking under directions set out in the Sarbanes-Oxley Act.

  3. In Canada, a number of regulatory and self-regulatory initiatives have been undertaken.

    • In August 2002, David Brown, Chair of the Commission, wrote to the TSX, the CICA, the LSUC, the chairs of the 10 largest securities firms in the country, and numerous market participants seeking their views on initiatives in the U.S. relating to the Sarbanes-Oxley Act and the appropriate Canadian response to such initiatives. His letters and the responses can be found at

    • In September 2002, the CICA published for comment an Exposure Draft entitled "Independence Standards," which will apply to auditors and other assurance providers.

    • Also in September 2002, the Canadian Public Accountability Board was established. Its mandate is to oversee auditors of public companies and help maintain public confidence in the integrity of financial reporting of Canadian public companies. Its founding Chair is Gordon Thiessen.

    • The Canadian Council of Chief Executives issued a report in September 2002 entitled "Governance, Values and Competitiveness - A Commitment to Leadership," in which they indicate their commitment to playing a leadership role in improving corporate governance practices in Canada.

    • In December 2002, the Government of Ontario passed the 2002 Amendments, which introduce important amendments to the Act, most of which were recommended in our Draft Report4. The Act will be amended to:

      1. introduce a regime of civil liability for secondary market disclosure;

      2. increase the maximum penalty which a court can impose for breach of the Act to $5 million and the maximum prison term a court can impose for breach of the Act to five years less one day;

      3. permit the Commission to impose administrative fines of up to $1 million per contravention of the Act and to order disgorgement of profits made from breaching the Act;

      4. introduce prohibitions against fraud and market manipulation, and against making misleading statements;

      5. give the Commission the power to make rules relating to audit committees and relating to CEO and CFO certification requirements; and

      6. enshrine in the Act the concept of continuous disclosure reviews.

    • The TSX has issued proposed new disclosure requirements and amended guidelines under its Corporate Governance Policy which will apply to all companies listed on the TSX.

Although it is beyond the scope of our mandate to respond fully to the implications of all of these developments, we have tried where possible to take these events into consideration in finalizing our Report.

We appreciate the opportunity to participate in this important public policy process. We would be pleased to provide any further assistance to the Government of Ontario on these matters.


Five Year Review Committee

Purdy Crawford, Chair
William Riedl
David Wilson
Carol Hansell
Helen Sinclair
Susan Wolburgh Jenah
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  1. The 2002 Amendments include amendments to the Act that will create express prohibitions against securities fraud, market manipulation and making misleading or untrue statements.
  2. The 2002 Amendments include amendments to the Act that will increase the maximum penalties that can be imposed by a court for offences under section 122 of the Act from a fine of $1 million and imprisonment for two years to a fine of $5 million and imprisonment for five years less a day.
  3. The 2002 Amendments include amendments to the Act that will create a statutory right of action for investors in the secondary market to sue companies and other responsible persons for misrepresentations or failures to make timely disclosure.
  4. None of the amendments contained in the 2002 Amendments have been proclaimed in force. The amendments will come into force on a day to be proclaimed by the Lieutenant Governor.

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