Policy Submissions        Editorials        FAIR in the Media        Events        Trending        About Us
November 2019
FAIR Focus: Insider Trading / Unlawful Agreements / OBSI /  FAIR Canada Endowment Fund

CSA Review of Automatic Securities Disposition Plans (ASDPs) Insider Trading Concerns
What's the  problem with ASDPs and what are the regulators doing about it?
The Canadian Securities Administrators (CSA),has announced on October 24, 2019 that it is reviewing the use of ASDPs "to ensure they remain a legitimate mechanism of trading by corporate insiders and do not undermine the fairness of capital markets". ASDPs are intended to permit insiders to make preplanned sales of securities through an arms-length administrator, according to predetermined instructions. Currently there is no national framework governing ASDPs. The CSA announced that regulators are unlikely to recommend new insider trading relief under ASDPs until the review is complete but existing exemptions for such plans are unaffected.
 Earlier this year, FAIR Canada wrote to the CSA (Letter 2)(Letter 3), (Letter 4) regarding delayed and inadequate insider reporting by corporate insiders of Bombardier Inc. pursuant to an ASDP. There are concern about the favorable timing of trading on behalf of the insiders. We called on regulators to revoke the exemption order for the Bombardier ASDP, require full insider reporting and to conduct a formal investigation. FAIR Canada recommended that regulators should revoke all existing ASDP exemptions and require new applications for exemptions that require consistent, objective controls on ASDPs.  The CSA responded that a reexamination of ASDPs had been initiated and that as Bombardier terminated its ASDP, concerns with the relief granted had become moot.
Misleading Insider Reporting for Companies with ASDPs!
INK Research, an independent financial information firm based in Vancouver, provides a   No-Go List  of stocks that have insider reporting and trading exemptions in place for corporate insiders pursuant to ASDPs. INK Research points out that in Canada there is a big disclosure shortcoming possible under ASDPs, which unlike similar plans that are subject to U.S. regulation, typically permit the corporate insiders to be exempt from timely insider trading reporting. In our view insider reporting for companies with ASDPs is misleading and investors should not rely on the published insider trading information. 
It is time for regulators to act!
Client Agreements Used by the Securities Industry Contrary to Regulatory Requirements
The Investment Industry Regulatory Organization of Canada (IIROC) issued a notice to its dealer members "encouraging" them to review their agreements with clients to ensure the agreements do not contain terms that violate IIROC requirements and securities laws
What's the problem with client account agreements?
There are investment dealers using client agreements that limit or exclude the dealers liability for client losses caused by the dealer. The offending agreements also contain clauses that state the dealer is excluded from regulatory suitability obligations that are imposed on dealers and their representatives by securities laws and IIROC rules. Agreements also contain clauses that improperly limit the dealers liability for systems malfunctions and for outsourced systems. In some cases, dealers are also using agreements that incorporate a standard of "gross negligence" to describe conduct for which the dealer is liable when such a concept is not defined nor consistent with Canadian law.
  What are the problems with IIROC's response?
FAIR Canada has written to IIROC to ask why the regulator is merely "encouraging" dealers to fix these agreements containing terms that violate IIROC rules and securities laws. Why isn't the regulator requiring immediate remedial action and clear communication to clients of the defects in the agreements they have been required by the dealer to sign in order to open an account? FAIR Canada recommends IIROC impose a deadline for such communication with clients and for the signing of new agreements with clients that are in full compliance with IIROC rules and securities laws.
  FAIR Canada also recommends that IIROC require dealers to review client complaints during the period when defective agreements were used to determine how many clients with legitimate complaints were not properly compensated due to the dealer relying on the defective agreements, and to provide appropriate compensation.
  FAIR Canada has asked IIROC to explain why there are no enforcement proceedings against the dealers   responsible for the use of these deceptive agreements .
Related:  CBCGo Public recently reported on financial institutions denying compensation to clients whose bank accounts were accessed by cybercriminals to steal money from the accounts.   Go Public found that banks are telling dozens of customers that they were to blame for thousands of dollars lost to e-transfer fraudsters.   Should the cybersecurity measures of the banks infrastructure be the responsibility of consumers or the banks?    When bank customers are victimized by internet "hackers" who gain online access to the customers assets at the bank due to weakness in the banks cybersecurity infrastructure, why are banks denying customers compensation?
The Slow Death of Canada's Banking Ombudsman - Investment Executive Op-Ed
FAIR Canada had an Op-Ed published in Investment Executive that highlights  the negative impact on financial consumers of the Canadian banks abandonment of the Ombudsman for Banking Services and Investments (OBSI).

What's happening to OBSI?
OBSI is the only true ombudsman service in Canada for consumer complaints with banks. The role of OBSI is to investigate consumer complaints independently and recommend appropriate settlements. But it is being abandoned by most of the big Canadian banks for complaints related to banking services or products. The federal government, which regulates banks though the Bank Act, the Office of the Superintendent of Financial Institution and the Financial Consumer Agency of Canada, sees this happening and hasn't stopped it. To their credit, the Canadian Securities Administrators, led by the Ontario Securities Commission, has refused to see the same thing happen for investments.

F AIR Canada believes that Canadians need a statutory, independent ombudsman for banking services and investments. Until such time as the federal government takes action to require the banks to use the services of OBSI and give OBSI the necessary teeth, FAIR Canada recommends that OBSI acknowledge the current system is leading to its slow death at the hands of the banks. OBSI should announce it will cease to provide services for any bank and inform Canadians the big banks have killed the only independent ombudsman service for consumer banking complaints.

FAIR Canada calls on the federal government to either require the big banks to use OBSI or create a statutory banking ombudsman.

FAIR Canada Endowment Fund
What's happening to FAIR Canada, the primary independent, professional investor advocacy organization in Canada?
FAIR has returned a $2 million donation plus accumulated capital to the Jarislowsky Foundation because FAIR was unable to obtain 200% in matching donations as required as a condition of the donation. FAIR Canada issued a press release on October 18, 2019 that contains additional details and a statement of support for FAIR Canada provided by Stephen Jarislowsky on behalf of the Jarislowsky Foundation, in which he states, "It is the responsibility of government and regulators to fund an independent professional organization with the expertise to provide a voice to lawmakers for retail investors and financial consumers." The Ontario Securities Commission has donated $2 million to the FAIR Canada endowment fund but other securities regulators and governments have declined.
FAIR Canada was created in 2008 in recognition of criticism of the Canadian securities regulator framework and the absence of a voice on behalf of individual investors participating in the process of developing securities regulation and policy. Canada was out of step with other major jurisdictions by not having an advocacy organization to represent the interests of individual investors in stark contrast the significant number of well-resourced industry associations and advocacy organizations representing the interests of the banks, securities dealers and corporations.
  Since the launch of FAIR Canada, other than the Ontario Securities Commission, securities regulators and governments have not stepped up to provide meaningful funding that allows FAIR Canada to carry out its mission. In 2012, the Jarislowsky Foundation provided $2 million for an endowment fund with a 200% matching condition. It was and is the position of the Jarislowsky Foundation that the primary responsibility for funding FAIR Canada, an independent, professional investor advocacy organization, should be shouldered by government and regulators.
FAIR Canada in the Media
FAIR Canada Executive Director, Ermanno Pascutto
October 21, 2019 
Ermanno Pascutto, Executive Director of FAIR Canada, was interviewed on BNN regarding the return by FAIR Canada of the $2 million donation from the Jarislowsky Foundation intended to attract other donors to create an endowment fund for FAIR. The interview is available by clicking the video.

David Milstead
The Globe and Mail
October 18, 2019
The Globe & Mail reported that FAIR Canada has given back money provided in 2012 by Stephen Jarislowsky, that was provided for endowment funding on the condition that other donors provide at least an additional $4 million. Mr. Jarislowsky blames governments and regulators for failing to provide adequate funding to FAIR. 

Dwarka Lakhan
Investment Executive 
October 18, 2019
The Investment Executive reported on the announcement by FAIR Canada that it has returned $2.4 million to the Jarislowsky Foundation and that Stephen Jarislowsky has also resigned as a board member of FAIR.

Support FAIR Canada by Subscribing to our Newsletter
FAIR calls on all Canadians  who value investor protections, shareholders rights, fairness and integrity of the capital markets to express their support for FAIR Canada and its mission, to show your support by subscribing to this newsletter and to help us reach more Canadians by asking your friends and colleagues to subscribe.


About Want to know more about FAIR Canada?
Who is FAIR Canada and what does FAIR Canada do? Find out more about us here.
FAIR Canada | 647-256-6690 | info@faircanada.ca | http://www.faircanada.ca
36 King Street East
Suite 400
Toronto, ON  M5C 3B2