The Ontario Securities Commission offices in Toronto on Dec. 12, 2019. Currently, the OSC can allocate enforcement money to pay back harmed investors, fund investor education and advocacy organizations, and compensate whistleblowers, but the commission uses just a small fraction of the money.Melissa Tait/The Globe and Mail
Ontario’s securities regulator has $123-million in the bank collected over the years from settlements and sanctions levied by its enforcement division. But in the most recent fiscal year, it spent just $7-million on investor education, payments to whistleblowers and compensation for harmed investors.
That stark contrast has the provincial government saying the Ontario Securities Commission needs to spend more of what it collects. And that’s prompted a new proposal by the Finance Minister to allow the OSC to redirect those funds to new technology projects and the commission’s Office of Economic Growth and Innovation.
But investor advocates are taking aim at the proposed regulation, saying funding operations with money from enforcement fines and penalties is a potential conflict of interest and could lead to uncertainty and instability in the OSC’s budget. Some also say they’d like to see more money go to investors harmed by bad actors.
“When a regulator’s budget is linked to the fines it imposes, there exists a risk that decisions might be influenced by financial considerations rather than the gravity of the violation,” said Harvey Naglie, an investor advocate and former senior policy adviser with the Ontario Ministry of Finance.
“This can inadvertently lead to over-enforcement or the imposition of excessive fines to meet budgetary targets.”
Currently, the OSC can allocate enforcement money to pay back harmed investors, fund investor education and advocacy organizations and compensate whistleblowers.
However, the OSC uses just a small fraction of the money.
The whistle-blower program began in 2016 and can award up to $5-million to individuals who report corporate misconduct. But it paid out just $481,092 in the 12 months ended March 31, according to the OSC’s financial statements. The commission used another $1.6-million for investor education and advocacy groups.
And while the OSC started the year with about $2.7-million set aside for possible allocation to harmed investors, only $142,796 was repaid.
The OSC does not impose administrative penalties and disgorgement orders for the purpose of compensating harmed investors. Some settlements include penalties from financial companies that may not have created losses for investors. And in some enforcement actions, it may be hard to locate the harmed investors, such as with insider trading or market manipulation.
The Ministry of Finance’s proposal – contained in a regulatory filing made earlier this month – is to expand the approved list of uses for both newly-collected and existing enforcement money.
Part of the reason for expanding the list, says the proposal, is to allow the OSC to make better use of its existing enforcement money by drawing down its accumulated balance. The move may also help prevent future accumulation of a large balance.
And it could help moderate fee increases for the companies the OSC regulates, the government says. Companies pay filing fees and other levies to fund the cost of regulation.
If approved, the money – which totalled $123.7-million at March 31, according to the OSC’s latest annual report – will allow the regulator to enhance its information technology, data acquisition and data analytics. According to the filing, enhancements may include the development, purchase, installation and deployment of software or hardware, and the implementation of special projects relating to data integration and risk modelling.
As well, the government suggested the OSC fund activities of its Office of Economic Growth, an initiative launched in 2020 to help bolster capital formation and reduce regulatory burden in Ontario’s capital markets.
“It is anticipated that allowing the OSC to use enforcement money to enhance its information technology and data capabilities would help the OSC strengthen its oversight and early detection of securities law violations to support the protection of investors through timely and impactful enforcement action,” Scott Blodgett, a spokesperson for the Ministry of Finance, said in an e-mail to The Globe and Mail.
“The proposed regulation would also allow the OSC to deliver on its expanded mandate with respect to fostering capital formation and competitive capital markets, without impacting its fees,” he said.
Canada’s primary investor advocacy group, the Canadian Foundation for the Advancement of Investor Rights, known as FAIR Canada, opposes the government’s proposal.
Executive director JP Bureaud said he understands the government’s desire to see the funds put to good use, but allocating funds to subsidize the industry, rather than support investors, does “not seem right.”
“It’s important to remind ourselves, however, the monies were collected from enforcement actions in which investors were harmed,” Mr. Bureaud said in an e-mail to The Globe. “As such, FAIR Canada would like to see more money used to compensate harmed investors or allocated to non-profits that advocate for or work on behalf of investors.”
Expanding the uses of enforcement money by the OSC does not necessarily take away from its investor protection mandate, says Poonam Puri, law professor and chair in corporate governance at Osgoode Hall Law School, who launched the school’s Investor Protection Clinic. The clinic receives funding from the OSC.
“Innovation and IT upgrades can make enforcement and compliance efforts more efficient and effective. Moreover, stronger data analytics can help the OSC make better decisions, promoting confidence in the capital markets.”
The OSC’s average collection rate on settlements and sanctions orders assessed during the year is 30.3 per cent, according to the annual report. That is down from 35.6 per cent in 2022 and 53 per cent in 2021.
“The government should focus on providing the OSC increased powers to seize assets from those with unpaid fines and other creative fine collection tools,” prominent investor advocate Ken Kivenko said.
OSC spokesperson JP Vesci said in an e-mail to The Globe the commission distributes funds in a “fair and cost-effective manner” in cases in which it can identify harmed investors. In cases in which that is not possible, the commission sets aside funds with the approval of the OSC board.
Currently, more than $72.5-million is earmarked for investor protection purposes, Mr. Vesci said. About $20-million is set aside for potential whistle-blower payments, $34-million for investor education and $17-million in reserve for third-party funding, which includes initiatives that support the OSC’s investor protection mandate.
Examples of past third-party funding initiatives include a payment of $3.75-million to FAIR Canada, almost $2.7-million to Prosper Canada and $375,000 to Osgoode Hall’s Investor Protection Clinic.
Mr. Vesci said the OSC established the reserve for third-party funding in response to a recommendation made by the province’s Auditor-General in the Value for Money Audit of the OSC.
If the proposed regulation is approved, Mr. Vesci said the OSC will earmark additional funds to enhance its information technology and data capabilities to “strengthen oversight and early detection of securities law violations.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
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