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Ontario regulator cuts surplus to $4 million

(July 7, 2005) The Ontario Securities Commission reports a surplus of $4.1 million for fiscal 2005, down from $21.6 million the previous year. The surplus issue has drawn criticism in the past, saying the government agency should not be generating a profit.

Still, the commission is cutting fees to balance revenues and expenses and expects to break even as early as next year.

The fees generated $78.4 million for the commission in the year ending March 31, 2005, slightly more than in the previous fiscal year. Because the fees exceeded expectations, the OSC issued a one-time refund of nearly $15 million “to accelerate the return of the surplus to market participants who funded it.”

The OSC fee model, introduced in 2003, is designed to reduce overall fees to accurately reflect the commission’s operating costs. The model will be adjusted in 2006 for the next three-year cycle.

“The OSC remains committed to ensuring that the fees paid by issuers and registrants reflect the anticipated costs of regulating each group. We are currently developing a proposed fee schedule for the three-year period ending in 2009. We are reviewing each service activity and its associated costs to determine the new activity fees. The participation fees will be set at a level that generates a cumulative deficit equal to the surplus collected from market participants as of March 31, 2006.”

Expenses in fiscal 2005 totaled $60.7 million, primarily in the form of salaries and benefits, which increased about 10 percent to $44.3 million.

The commission added $787,000 to its coffers last year from settlements resulting from enforcement proceedings. The total balance of designated settlements now stands at $2.5 million, held in a separate bank account.

The OSC also has a $20 million reserve fund invested in six-month and one-year Treasury bills. Another $12 million has been set aside for a proposed merger between the OSC and the Financial Services Commission of Ontario. But that proposal, first introduced in 2000, appears to be losing steam. Five years later, the legislation has yet to be introduced, replaced by other issues such as a passport system and efforts to establish a national securities regulator.

Looking ahead, the commission expects to balance its books in fiscal year 2006, with revenues and expenses projected at approximately $67 million. The budget does not project a significant change in the level of market activity next year.

(07/07/05)

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