The idea of merging the OSC and the FSCO has been around for a while. The resulting entity, the Ontario Financial Services Commission, would have tremendous powers:
The 2000 Ontario Budget announced the merger of the Ontario Securities Commission (OSC) and the Financial Services Commission of Ontario (FSCO) into a single financial services regulator. The announcement reflects the government's direction to create an effective one-window regulatory process to better serve and protect consumers, investors, pension plan members and industry participants.
The government intends to introduce legislation in the fall to create the Ontario Financial Services Commission (OFSC), a Crown Corporation with self-funding and rule-making authority responsible for regulating financial services in the Province.
David Young, Parliamentary Assistant to the Minister of Finance, the Honourable Ernie Eves, will lead consultations on this discussion paper with consumers, investors, pension plan members and industry participants across all of the regulated financial services sectors. Feedback and advice to the Minister from this consultation process will form the basis for legislation creating the Ontario Financial Services Commission.
Now if you were concerned about the OSC's powers and the lack of oversight, you might think a merger like this would be a good thing, since it might dilute the OSC. As it is, the plan was definitely more of a takeover of the FSCO by the OSC than a merger:
The proposed legislation would establish the Ontario Financial Services Commission, a single integrated provincial regulator which would combine FSCO and the OSC into a comprehensive financial services regulator for the Province.
The legislation would establish the OFSC as a self-funded, non-share capital corporation with rule-making powers.
The proposed OFSC would administer, under the authority of a new Act, the statutes which are currently the responsibility of FSCO and the OSC. Thus the OFSC would have regulatory responsibility for:
- all market participants as defined in the Commodity Futures Act
- all co-operative corporations to which the Co-operative Corporations Act applies
- all credit unions, caisses populaires and leagues to which the Credit Unions and Caisses Populaires Act, 1994 applies
- all persons engaged in the business of insurance and governed by the Insurance Act
- all corporations registered or incorporated under the Loan and Trust Corporations Act
- all mortgage brokers registered under the Mortgage Brokers Act
- all persons who establish or administer a pension plan or pension fund under the Pension Benefits Act and all employers or other persons on their behalf who are required to contribute to a pension plan or pension fund
- all market participants, as defined in the Securities Act.
The OFSC would also have responsibilities under the Marine Insurance Act, the Motor Vehicle Accident Claims Act, the Prepaid Hospital and Medical Services Act and the Registered Insurance Brokers Act.
The new Commission would have decision-making, rule-making and adjudicative powers, similar to the current Ontario Securities Commission. Panels of one or more Commission members would conduct hearings and rule on enforcement and other issues. The Commission would have the power to make by-laws which would be subject to the approval of the Minister of Finance. The members of the Commission would also serve as its Board of Directors, responsible for overseeing the management of the financial and other affairs of the Commission. [emphasis added]To achieve the goal of harmonization and to ensure fairness, consistency and a level playing field across financial services sectors under the jurisdiction of the Province, it is proposed that the OFSC have rule-making authority for the statutes it will be charged with administering and enforcing.
The OSC currently has rule-making authority as defined under Section 143 (1) of the Securities Act and Section 65 of the Commodity Futures Act. The OSC was given rule-making authority on January 1, 1995 to give the Commission sufficient authority to regulate effectively in a flexible, responsible and accountable manner as recommended by the Task Force on Securities Regulation (Daniels' Report).
Currently both the OSC and FSCO use non-binding tools to assist the regulated sectors and to provide direction on various statutory provisions. However, where a matter requires a mandatory direction, the ability to make rules, such as the OSC's current rule-making power, is an efficient and transparent way to regulate.
Once the Commission has adopted a rule after the notice and comment process, the Commission would deliver to the Minister of Finance a copy of the rule, amended to reflect comments, and publish a summary of the comments received on the rule and the Commission's response to significant issues brought to its attention. Within a reasonable period after a rule's delivery to the Minister (currently 60 days under the OSC process), the Minister may approve or reject the rule or return it to the Commission for further consideration. If the Minister does not approve, reject or return the rule, it becomes effective within a specified time period (currently 75 days after delivery to the Minister, unless a later date is specified in the rule).
No change is proposed to the subject matters on which rules may be made under the Securities Act or the Commodity Futures Act.
In other words, the OSC would remain the OSC, but would take over everything the FSCO does, but with far more power than the FSCO currently wields. In fact, the new super-OSC would lose nothing at all in the merger.
But look at all the things the super-OSC would now regulate: insurance brokers, credit unions, mortgage brokers, pension funds. We might not all be players in the stock market raising capital, but we all have insurance, many of us have mortgages, we might have pensions, or have parents or grandparents who do. Just look at the scope of the FSCO's responsibility:
As of March 1, 2006, FSCO regulated or registered 402 insurance companies, 7,881 pension plans, 239 credit unions and caisses populaires, 51 loan and trust companies, 947 mortgage brokers, 1,767 co-operative corporations, as well as approximately 35,446 insurance agents, 3,806 corporate insurance agencies and 1,208 insurance adjusters. The regulated sectors represent a large, dynamic and evolving industry that plays a vital role in the provincial economy and the financial security of individuals and families.
The FSCO is a regulatory body, enforcing the regulations outlined in legislative acts. Unlike the OSC, the FSCO does not make the rules:
3. The purposes of the Commission are,
(a) to provide regulatory services that protect the public interest and enhance public confidence in the regulated sectors;
(b) to make recommendations to the Minister on matters affecting the regulated sectors; and
(c) to provide the resources necessary for the proper functioning of the Tribunal. 1997, c. 28, s. 3.
For instance, the Insurance Act is enforced by the FSCO. The Insurance Act, tabled in the legislature and passed by a voted of the elected members after public consultation, outlines in great details all the ins and outs of issuing insurance policies in Ontario. No last minute changes are possible since any change to the legislation would require another legislative act.
Under the proposed merger, the super-OSC would absorb these acts and make rules changes in the same way it does for the Securities Act.
But all this was in 2000. What about now? Gerry Phillips, Minister of Government Services, and the minister in charge of the OSC (Greg Sorbara, the Minister of Finance, is barred from this role because of an ongoing OSC investigation to shady dealings that took place while he was CEO of Royal Technologies), answered that question recently, during an OSC review in 2004:
Mr John O'Toole (Durham): I just have a couple of questions that aren't directly related in the most obvious way, but they are to me. I have to qualify that I'm not near up to appropriate speed on this file. It's very complicated and very technical.
I was aware of the attempt to merge all financial regulation -- and that included pension funds and co-ops and credit unions -- under FSCO. FSCO kind of looks after the regulation of that. The merger of OSC and FSCO: What's the status of that?
It was my sense that the smaller capital players, like credit unions and certainly, to some extent, co-ops and then the uniqueness themselves of the pension fund managers, being the large pool of capital -- are they all going to be lumped in under the one? I became less and less comfortable with the one big window to the capital market including the small and then the extensively large, like the pension fund groups, which are basically huge. They're the whole capital market, technically, in terms of moving funds. What's the status of the OSC-FSCO merger, and what do you see as the role for the small and then the very large players in that?
Hon Gerry Phillips (Chair of the Management Board of Cabinet): I may get Phil to comment in a second. Our focus, our priority right now, is finding a way to move to a single, national securities regulator. That's where our focus has been and will be over the next period of time. I do think, Phil, that Quebec has moved to this model, if I'm not mistaken, and we are watching that. They've moved to it, and so obviously we're watching that.
In answer to your question, our priority is going to be seeing if over the next little while we can't find a way to move to a form of single securities regulator.
The priorities have not changed since then, and the OSC and the FSCO remain separate entities, with vastly different areas of responsibility and dramatically different levels of power.
Six years now, and the current minister in charge is simply not interested in the issue. I think it's fair to say the idea is dead.
So why is it in the 2006 Annual Report, the OSC reports on millions of dollars stashed away for this merger?
In the May 2, 2000 Budget, the Minister of Finance announced that the Ontario Securities Commission and the Financial Services Commission of Ontario would be merged into a single agency that would provide regulation of the capital markets and financial services sectors.
Legislation is required in order to create the proposed new organization and specify its regulatory responsibilities and powers. Draft legislation supporting this initiative was released for comment by the Ministry of Finance in April 2001. At March 31, 2006, legislation has not yet been introduced.
The Commission received approval from the Ministry of Finance to retain $12.0 million, which may only be used toward implementation costs of the proposed merger and is subject to appropriate terms and conditions agreed with the Ministry of Finance, including:
i) The monies will be paid to the Consolidated Revenue Fund, in part or in full, if not required to fund the costs of the merger; and
ii) While retained by the Commission, the monies will be invested with the Ontario Financing Authority.
Now that's patience. Of course, the OSC knows this is worth waiting for. Imagine being able to regulate all that money for the public good.
But really, six years? A change in government? This idea is on life-support, and no one seems eager to resuscitate it.
What's really amazing was that in 2001, the OSC thought the merger would cost one-tenth as much:
In addition to the OSC operating budget, $1.1 million has been budgeted for professional services costs related to the work which will be required related to implementation of the planned merger of the OSC and the Financial Services Commission of Ontario (FSCO). Legislation is required in order to create the proposed new organization and specify its regulatory responsibilities and powers. Draft legislation supporting this initiative was released for comment by the Ministry of Finance in April 2001.
It wasn't until the next year, in 2002, that the $12 million fund was created to pay for an idea that was already stuck in the mud:
The OSC received approval from the Minister of Finance to retain $12 million from its operating surplus to be used towards the OSC’s share of the implementation costs should the proposed merger of the OSC and Financial Services Commission of Ontario (FSCO) receive legislative approval.
The report doesn't name the minister explicitly, but I think it would have been Jim Flaherty. By my count, that was five finance ministers ago (Jim Flaherty, Janet Ecker, Greg Sorbara, Dwight Duncan, and Greg Sorbara again). Six ministers if you count Gerry Phillips who took over responsibility of the OSC from Sorbara.
And the money has been there ever since. Note that no bill has ever been tabled. This is not a bill justing waiting for third reading. This is just an idea, six years old, that has gone nowhere, and that has no champion in cabinet.
So what difference does it make? Note that if the money is not required for a merger, the money goes to the Consolidated Revenue Fund. In other words, back into the government's general tax bucket, and thus hopefully back to you and me in some form or other. That means Dalton McGuinty could use the $12 million to fund a new MRI machine, or pay to reduce waiting times for hip surgery, help top off funding for school boards, use it to upgrade or repair a road somewhere, or anything else.
Heck, he could use it to pay down a bit of debt and thus give us more bang for each buck of taxes we pay going forward.
The sum of $12 million might not make or break the province, but it is our money. It is also about the principle of the OSC holding on to cash that it doesn't need.
The money is sitting there, going on five years now, and all that has to happen to release it is for the minister to say the idea of the merger is not going anywhere anytime soon. In other, he just has to state the obvious.
I'd like to know why that hasn't happened. It's not like Gerry Phillips hasn't been asked about it. Is the OSC applying pressure, making sure that a eulogy for the merger idea is never delivered, hoping that one day it will get control of the FSCO?
