What the OSC should learn from its recent settlement

Could the regulator have handled a recent high-profile case better?

What the OSC should learn from its recent settlement
In reaching a settlement with the Ontario Securities Commission (OSC), Home Capital has cleared a legal cloud that had caused a precipitous drop in its share prices and turmoil throughout the financial markets. But while most settlements serve as a lesson for those charged with wrongdoing, the OSC might also learn something from this case.

“The OSC, led by newly-named chair Maureen Jensen and equally freshly-minted head of enforcement Jeff Kehoe, triggered a crisis of confidence at Home Capital,” said Andrew Willis in a piece contributed to the Globe and Mail.

“The regulator alleged in April that Home Capital didn’t come clean on fraud that took place two years ago in its mortgage business,” he said, noting how massive pullouts of client deposits brought the lender to its knees and threatened to send credit and real-estate markets reeling.

To reassure its investors as well as the markets at large, the firm agreed to an approximately $30-million settlement that sees the regulator being cleared of any responsibility for the plunges and panic. In a news release, Home Capital Chair Brenda Eprile said the firm “acknowledges that the Commission is not to blame for the events of recent months involving its liquidity position.”

“Financial institutions require the faith of clients to stay in business, and regulatory allegations against the Toronto-based mortgage lender called that faith into question,” Willis said. “The resulting run on deposits shows why federal regulators make a point of being discreet in dealing with problems at the banks and insurers they supervise.”

He noted that the OSC should reflect on the costs paid in winning settlements. While he acknowledged that the regulator should enforce the rules, he cited a strongly held belief among legal circles that taking a hard line against Home Capital for disclosure issues was the wrong way to send a signal to erring financial firms.

“From the OSC’s point of view, sources say there is an equally strongly held view that Home Capital and its legal advisers dug in their heels on the terms of the settlement and that led to the public showdown,” he said.

Willis added that Home Capital and its executives would probably have been cleared had the OSC allegations been taken to a hearing. The disclosure decisions Home Capital made in 2015 were approved by Torys lawyer and former OSC Chair Jim Baillie, and are being defended by Ed Waitzer — who is also a former OSC head and a lawyer at Stikeman Elliott.

For more of Wealth Professional's latest industry news, click here.

Related stories:
Pressure easing on Toronto-based lender
Canada assets drop on bank downgrade