TAKING STOCK OF THE PAST FIVE YEARS AT THE OSC
Howard Wetston discusses the securities commission’s impact and what lies ahead for him as the former lawyer retires as CEO
In one of his last acts as head of Canada’s largest securities regulator, Howard Wetston oversaw plans to encourage whistleblowers to come forward by offering a reward worth up to $5 million in major cases.
It was a fitting close to Wetston’s five years as chair and chief executive officer of the Ontario Securities Commission (OSC), a period in which he sought to be more proactive on behalf of investors.
Under his watch, the OSC hired mystery shoppers to find out what investment advisers really tell clients behind closed doors, beefed up enforcement and pushed companies to promote women to the highest ranks.
The 68-year-old former lawyer and judge officially stepped down on Saturday.
The OSC’s job is to protect investors from unfair, improper and fraudulent practices, foster fair and efficient capital markets and maintain public and investor confidence in those markets. In Ontario, that includes the Toronto Stock Exchange and TSX Venture Exchange.
But the commission has long faced criticism for its poor track record of enforcement, especially in major cases.
In a recent interview, the Star asked Wetston to reflect on what he accomplished and the challenges that lie ahead.
You hired mystery shoppers to find out what investment advisers were telling clients behind closed doors, and undertook a study of how trailer fees paid to advisers influenced the products they sold to investors. Why was this necessary?
You’ve heard over the years that (management expense ratio) fees in Canada are too high and that trailer fees are included in virtually all mutual fund sales and that the trailer fee is paid regardless of the performance. When you combine the two (pieces of research) together, you start to get a sense of how the real world works. Not only how it works from the point of view of the industry . . . or from the perspective of investors who have had bad experiences. We want our own research to assess whether there is a need to do something. It was an extremely different approach for us.
The main tool now for protecting investors is disclosure, the requirement that public companies and mutual funds provide certain information about themselves. Why isn’t that enough?
Disclosure has been a very important tool for investors. But the unfortunate part is a lot of investors really don’t understand what they’re investing in. A lot of investors spend a lot more time buying their fridge than they do a mutual fund.
Many investors have a considerable amount of trust in their adviser, which we think is important and many advisers should be trusted. But not all. So we spent a lot of time trying to get a better handle on the retail investor, because it’s so important for their future, for their retire- ment, for paying for their kids education, for taking on lifestyle needs.
The OSC is considering introducing a “best interests” standard, which would require advisers to put their clients’ interests first, even if it meant recommending a fund that paid a lower commission. When will investors see that?
We have discussed the possibility of introducing in Ontario a “best interest” standard. They’ve done it in Australia. They’ve done it in the U.K. We’ve been studying those jurisdictions. It’s early days. The research has been somewhat ambiguous as to whether it’s producing the (desired) results.
The OSC has assembled a new special investigations unit for more serious financial crimes, called JSOT. It combines RCMP and OPP rackets squads with OSC investigators. What impact is it having?
We formed this two years ago in May. They’ve already executed 118 search warrants. This is a real message to the market. We’re serious about financial crime.
From 2010, we’ve obtained 22 years of jail time for individuals, many of them recidivists. These are difficult people to collect fines from. We’ve collected $22.6 million. If I look back five years from today, I think we’re going to see results we have not seen before.
One of your missions, when you were appointed chair by former Ontario finance minister Dwight Duncan, was to support federal-provincial efforts to launch a national securities regulator. It’s still a work in progress.
The original intention was to have it launched, or at least in place, this fall. We were not able to meet that date so a new date has been set, which is the fall of 2016.
We’ve just had an election and a new government in Ottawa. We have a new (federal) minister of finance. He has a lot on his plate. At some point, a decision will be made as to how to proceed.
I think what a national regulator gives, besides the opportunity for greater efficiency, speedier policy making and less compromise in the development of standards, is less likelihood that you reduce any of the uncertainty or confusion that exists in the markets because of different requirements.
We are the only country of the 105 member of the International Association of Securities Commissions . . . that does not have a national securities regulator.
What’s next for you?
I don’t know. I’m looking at some possibilities. The opportunities are less available if you’re not in a full-time position. And I’m not exploring any full-time positions. And why would I leave here if I was? It’s a great organization. Public service is still important to me. I’ll find some way to continue doing that.
The interview has been edited for length.