The Ontario Securities Commission ("OSC") is Canada's largest regulator of the securities industry. Their central goal is to act as consumer protection agents for the investing public. They accomplish their mandate by regulating the players who are involved in the investment industry by virtue of their licensing regime, and ensuring the products, which are sold to the public, are also vetted and approved. In today's new corporate governance world, the OSC is taking a more pro-active role in monitoring the markets and the players. When the OSC comes calling, you want to have the right game plan and answers for them. After all, they decide who gets to swim in the pool.

The OSC may approach an individual or management of a company essentially under three different scenarios. The first case would be routine compliance reviews that the OSC performs to take the temperature of whether industry participants are observing the regulations. Typically, this involves a standard letter going out to randomly selected individuals or companies seeking baseline types of information. The information is then compiled and the OSC staff will then make suggestions to various industry officials as to where they see weaknesses that need to be addressed. To dismiss their requests for information as just a casual survey would not be prudent. While this is a voluntary exercise, the results will be returned to participants and the OSC's analysis of the data should indeed help the individual or company with their corporate governance regime.

The second scenario where the OSC will reach out to an individual or publicly traded company, is where they feel the need for further information to explain market activities. A common example is where their tracking software has discovered a significant spike in the trading of a company's share. A combination of the OSC and the TSX will then review the disclosure documents leading up to the spike in share price to determine if a material change report, or a news release, should have been released to the public at large. The OSC is trying to determine if adequate disclosure occurred prior to this event. This type of inquiry typically originates with phone calls from the representative of the OSC. Too often these inquiry types of calls are treated with a certain amount of hostility and resentment. By analogy, this is not a wise tactic – it is similar to sounding off to the police officer that is conducting a standard RIDE program during a holiday season. The OSC will invariably be moving through a checklist of questions ("did any insiders conduct trades during this period", for example) for the respondent to answer in a timely manner. The goal here is to provide the information required in a timely manner such that the OSC does not feel that this should be a full-blown enforcement matter.

The third general category where the OSC might come calling is where they are responding to a complaint. An investor, for example, may be unhappy with the practices of an investment advisor, or company officials may have breached certain disclosure requirements that prompt the shareholders to file a complaint. In this scenario, the OSC wants to determine whether there was inappropriate activities or actual wrongdoing in the marketplace. As one can imagine, the OSC receives far more complaints than they could possibly respond to and therefore if they are following up on a complaint they must sense an element of merit to the complaint that warrants devoting their limited resources to the matter at hand. If the OSC, therefore, decides to run with this ball then this deserves full time and attention from the individual or company in question. Under this last scenario it is important to be reminded of the fact that the OSC does not have the mandate to provide restitution to the investing public. If there are millions that are missing, it is not the goal of the OSC to restore those lost funds. That is the role of the civil courts, or the criminal system might step in as well. Again, the central role of the OSC is to protect the public interest in the investing community. Above and beyond the need to be cooperative and timely with the OSC where the OSC has decided to take on a complaint, the individual or company in question would be well advised to take immediate steps on a voluntary basis that would demonstrate they understand that the public must be protected immediately. While the facts may be different, an example might be to simply have the person in question stand down or step aside until things are resolved.

An important strategy to deploy when responding to virtually any regulator in the investing industry, is to establish up front what a reasonable time frame would be to resolve the various issues at hand. Individuals need to proceed with their livelihoods, and companies need to continue making revenues. Asking the regulator to devise a timeline as to when specific issues and information will be received and resolved needs to be established up front. This proactive step will go a long way to ensuring that no one gets lost in the shuffle when the regulators come calling.

By Sean Caulfeild

Sean can be reached by e-mailing scaulfeild@perlaw.ca or calling (613) 566-2821.