Happy New Year! FAIR Canada's Wish List for 2018
FAIR Canada wishes you and your family a very happy New Year!
As the new year begins, we have a wish list of investor protection initiatives that we would like to see come to fruition this coming year.
- Implement a best interest standard
- Ban all forms of third-party embedded commissions
- Have one statutory national ombudservice with the power to make binding decisions
- Implement a national and comprehensive consumer-friendly registration check
- Create a fraud compensation fund in a manner similar to that used in Quebec with the Fonds d'indemnisation des services financiers or the UK's Financial Services Compensation Scheme
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Improve the detection and prosecution of investment fraud
The Team at FAIR Canada
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Cautions About Cryptocurrencies: OSC's Investor Office Introduces Resources for Retail Investors; AMF and IOSCO Caution Investors
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The Ontario Securities Commission's Investor Office has
resources for investors interested in learning about cryptocurrencies, in particular the considerable risks that often accompany these kinds of investments. The resources include the results of a survey conducted by the Investor Office to learn more about which segments of the Ontario public are purchasing cryptocurrencies and an article providing an overview of cryptocurrency offerings.
The Autorité des marchés financiers has also
cautioned investors about the risks associated with initial cryptocurrency or token offerings and is reminding issuers about their obligations under securities laws.
The International Organization of Securities Commissions (IOSCO) Board released a
communication on concerns related to Initial Coin Offerings (ICOs) and stated that, in its meeting October 18-19, 2017, the IOSCO Board discussed the growing usage of ICOs to raise capital as an area of concern. Following the meeting, it issued a statement to its members (ie securities commissions) regarding the risks of ICOs and it has also set up an ICO Consultation Network.
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| FAIR Canada and PIAC Welcome Steps to Ensure Compliance with OBSI Requirements |
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FAIR Canada/PIAC Response to Joint CSA Staff Notice 31-351; IIROC Notice 17-0229, MFDA Bulletin #0736-M
FAIR Canada and PIAC welcome the CSA, IIROC and MFDA taking a step in the right direction to improve compliance with the OBSI dispute resolution process for securities complaints.
We are pleased to see that the CSA, IIROC and MFDA will:
- Make registered firms comply with their regulatory obligation to notify clients of their right to utilize OBSI's services upon the earlier of being provided with the firm's substantive response or after 90 days.
- Not permit registered firms to mislead clients into thinking that they must exercise the option of using an internal "ombudsman" before they can access OBSI's services.
- Require registered firms to disclose clearly to clients that any internal "ombudsman" is employed by the firm and, unlike OBSI, is not an independent dispute resolution provider.
- Require registered firms to disclose clearly to clients that they may submit a complaint to OBSI without using an internal "ombudsman" - if either no substantive response is received from the registered firm within 90 days or the client is not satisfied with the response received within 90 days.
- Require registered firms to disclose clearly to clients that OBSI is a free service.
- Require registered firms to disclose clearly to clients that the use of an internal "ombudsman" is voluntary, that statutory limitation periods continue to run while using that process which may impact a client's ability to commence a civil action (and therefore harm their legal rights).
We are also pleased to see that the CSA, IIROC and MFDA may view refusals or low ball offers as an indication of problems with a registered firm's complaint handling practices including their obligation to deal fairly, honestly and in good faith with clients, act within the applicable standard of care, or have implemented and maintained effective complaint handling procedures.
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| IAP Urges Implementation of Recommendations of FAIR Canada/CCEL to Protect Vulnerable Investors |
The Ontario Securities Commission's Investor Advisory Panel has written a
letter
to Maureen Jensen, Chair of the OSC, in support of FAIR Canada and the Canadian Centre for Elder Law's (CCEL) Report on Vulnerable Investors: Elder Abuse, Financial Exploitation, Undue Influence and Diminished Mental Capacity. The Panel supports the report's key recommendations and encourages lawmakers and regulators to begin the process necessary to implement the recommendations as soon as possible, in order to better allow investment firms to report and prevent financial exploitation of seniors and other vulnerable investors. The Panel also commended FAIR Canada and the CCEL on highlighting "a current gap in Canadian law and regulation."
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| Follow-up Review of EMIs Listed in Canada Needed |
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In response to Aequitas NEO Exchange's consultation on proposed listing manual amendments to permit the listing of Emerging Market Issuers (EMIs), FAIR Canada recommends that Canadian securities regulators conduct a follow-up review of EMIs that are listed on Canadian exchanges and have significant business operations in emerging market jurisdictions to determine if the OSC's 2012 recommendations and guidance, and the present listing standards on Canada's exchanges, have addressed the systemic issues that were identified. Is the quality and adequacy of EMI disclosure and corporate governance practices where we want it to be, and are the EMI gatekeeper roles played by auditors, underwriters and exchanges being discharged in a manner that results in adequate investor protection and integrity of our markets?
FAIR Canada urges the follow-up review to include: (i) benchmarking to other jurisdictions' approaches to addressing issues related to EMIs; (ii) conducting an empirical analysis regarding the amounts raised in Canada by EMIs and their share price and market capitalization performance over time; and (iii) an analysis of the difficulty Canadian regulators presently face in dealing with compliance and the requisite investigation of and enforcement action against EMIs, including the costs associated with regulating EMIs as well as the difficulties in pursuing criminal enforcement of fraud against EMIs.
Experience has shown that Canadian regulators are often not able to mandate compliance, conduct proper investigations, or take effective enforcement action against EMIs and their directors and senior management. Furthermore, the investigations tend to be very costly compared to domestic investigations.
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| FAIR Canada Comments on Technology-led Innovation in Canadian Financial Services |
FAIR Canada has
commented on the Competition Bureau's Draft Report, which reviews technology-led innovation and emerging services in the Canadian financial services sector. FAIR Canada believes that FinTech presents potential benefits and opportunities for consumers, but may also present risks to investor protection that should be examined and addressed. FAIR Canada has encouraged the Competition Bureau, given its clear expertise, to work collaboratively with securities regulators so that Canadian financial consumers and investors are served by an investment industry that has effective competition in the interests of consumers.
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The Globe and Mail Investigates Financial Fraud and Effectiveness of Enforcement in Canada
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The Investigation
The Globe and Mail recently published a series of articles on its investigation into fraud in the capital markets and the issues surrounding enforcement and deterrence of repeat offenders. The one year investigation, reported by Grant Robertson and Tom Cardoso, analyzed 30 years of regulatory cases available online "in an effort to determine how often capital markets were being exploited by serial abusers and what their behavior says about the weaknesses inherent in Canada's enforcement of financial crimes."
The investigation found that recidivism in fraud cases is an issue with one in nine reoffending, and with regulators often being prevented from appropriately sanctioning offenders due to legal impediments in the area of regulatory law. In particular, the investigation found that over $1.1 billion in fines has not been collected by securities regulators, demonstrating "how many of these sanctions are being ignored among white-collar criminals and fraudsters, and how toothless the regulators are in their ability to collect." With no jail time being included in regulatory tribunal fine orders and most fines being uncollected, there is "often nothing to prevent the offenders from simply walking away unpunished."
The investigation also looked at how the use of an alias has opened the door for white-collar criminals to commit repeat offences before being caught - regulators are unable to keep tabs on perpetrators as they move across the country until it is too late and more financial damage is done. In the examples cited in The Globe and Mail, investors that were victims of the fraudulent activity have been unable to recover their money, while a "buyer-beware" approach has been ineffective, particularly with information on securities regulators' websites related to past offenders and whether investment advisors are licensed to practice, being "incomplete, hard to navigate, or difficult to obtain."
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FAIR Canada's Annual General Meeting held in Toronto
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FAIR Canada is pleased to announce that its annual general meeting was held on November 15, 2017 in Toronto. Members re-elected 9 directors to the FAIR Canada Board of Directors. The following directors were re-elected:
Preet Banerjee
Stephen Jarislowsky
Guy Lemoine
Ermanno Pascutto
Rossa O'Reilly
Ellen Roseman
Dawn Russell
Marc Ryan
Larry Waite
Ermanno Pascutto continues in his role of Chair of the Board while both Ellen Roseman and Guy Lemoine hold the position of Vice-Chair.
More information about FAIR Canada's Board of Directors, its mandate and membership of its committees is available on
FAIR Canada's website..
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FAIR in the Media
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CBC Investigates: 'Gap in the system': Winnipeg man, once found unsuitable to sell securities, was able to sell life insurance
Vera-Lynn-Kubinec of CBC News writes that a former Winnipeg life insurance agent was allowed to keep selling insurance after he was found unsuitable for selling securities, pointing to gaps in the regulatory system. Frank Allen, FAIR Canada Executive Director, states in the article: "Unfortunately in too many cases, individuals who have been sanctioned by one regulator may be permitted to carry on financial services activities without any intervention by another regulator." Watch video including interview with Frank Allen
here.
The Investment Executive's James Langton reports that the Supreme Court of Canada has set March 22 as the date it will hear arguments regarding the constitutionality of the proposed Cooperative Capital Markets Regulator. Both the federal government and British Columbia are appealing a ruling from the Quebec Court of Appeal that ruled the proposed CCMR model is unconstitutional. The article cites FAIR Canada's recent position on the CCMR and quotes from FAIR Canada's White Paper, which argued that in both its governance structure and substance, the CCMR is not in investors' interests.
James Langton of the Investment Executive reports on the joint statement by FAIR Canada and the Public Interest Advocacy Centre (PIAC) responding to the CSA, IIROC and the MFDA's joint notice warning industry firms that refusing OBSI compensation recommendations or offering "low ball" settlements to aggrieved investors would be under greater regulatory scrutiny and possible enforcement action. The article notes that FAIR Canada and PIAC in their response to the joint notice asked that the Ombudsman for Banking Services and Investments (OBSI) be given binding decision-making authority "to prevent low-ball offers and refusals from being a systemic issue".
James Langton of the Investment Executive writes that the CSA, IIROC and MFDA published a notice highlighting their concerns with current industry complaint-handling practices, but stop short "of giving the Ombudsman for Banking Services and Investments (OBSI) the power to make binding investor compensation recommendations." The article notes that FAIR Canada and PIAC previously warned that using "internal ombudsmen" as an additional form of dispute resolution "is potentially misleading and confusing to investors...harming their access to redress."
James Langton of the Investment Executive details the release of the Competition Bureau's draft report relating to its fintech market study, which was open for comments during a two week period following its release. Langton cites FAIR Canada's submission on the draft report and its endorsement of the Competition Bureau's proposals to facilitate more comparison shopping by investors and make switching firms easier. The article also notes some concerns FAIR Canada had with the draft report, particularly that the "benefits of fintech should never be assumed and should always be encouraged with an eye to ensuring fair and efficient markets and adequate investor protection."
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Want to know more about FAIR Canada?
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Who is FAIR Canada and what does FAIR Canada do? Find out more about us
here.
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