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March 2018
FAIR Focus
March is Fraud Prevention Month

There is no guaranteed way to protect against investment fraud. However, we provide some tips and resources to help you try to protect yourself. We also provide some recommendations so that Canada has a better ability to combat investment fraud.

The Team at FAIR Canada

Protecting Against Investment Fraud

There are no guaranteed ways to protect against investment fraud but here are three steps that you can take:
  1. Conduct a registration check
  2. Learn some of the major signs of investment fraud;
  3. Learn Five Rules for Avoiding Investment Fraud
The British Columbia Securities Commission (BCSC) has a series of  videos  on common fraud warning signs you may want to take a look at.

Consider the Risky Nature of Cryptocurrencies and Initial Coin Offerings

We also remind investors about the considerable risks associated with investments in cryptocurrencies and Initial Coin Offerings. The Ontario Securities Commission's Investor Office has put together   resources for investors interested in learning about cryptocurrencies and the risks associated with them, while the British Columbia Securities Commission has produced a  video discussing the risks associated with Initial Coin Offerings.

FAIR Canada was pleased to see a  report that the Securities and Exchange Commission in the United States sent subpoenas to dozens of companies and individuals behind Initial Coin Offerings, asking for a wide range of information about the virtual currencies they sold.

Last month, the securities commissions of BC, Manitoba New Brunswick, Nova Scotia and Ontario alerted investors about USI Tech Limited, which appeared to be involved in a multilevel marketing scheme targeting Ontario investors and encouraging them to purchase bitcoin products.

Improvements to Combat Investment Fraud Needed

Improvements to the regulatory system in Canada are needed to fight investment fraud more effectively. We urge regulators, government and other stakeholders to work together to combat investment fraud. In particular, FAIR Canada recommends:
  1. Creating one, comprehensive, user-friendly check registration database as the current system is very complicated and necessitates the search of several databases.
  2. Establishing a central place for the reporting and enforcement of fraud, which utilizes integrated teams with necessary expertise and the essential tools to successfully prosecute fraud cases.
  3. Removing the Northwest Exemption from all Canadian jurisdictions, which has allowed unregistered individuals to sell high-risk exempt market products to the investing public, including vulnerable groups.

FAIR Canada Opposes Changes to the IIROC Plain Language Rules on Order Execution Only Firms and Calls for Changes to SROs' Rules re Complaints

FAIR Canada has provided its  comments to IIROC Notice 18-0014 regarding IIROC's Plain Language Rules (PLRs). FAIR Canada recommends that any proposed changes regarding OEO firms, including the scope and content of an account appropriateness requirement, be deferred until such time potential changes in light of CSA Consultation 81-408, and the OSC's pending Seniors Strategy are known. The current proposed amendments to the PLRs may attempt to absolve OEO firms from any responsibility to protect investors from purchasing  inappropriate products, including purchasing or holding "A" class mutual funds since it does not require that the OEO firm determine whether "the scope of products and account types" that the person has access to within the OEO account are appropriate for the person (proposed PLR 3211(2)). FAIR Canada opposes the adoption of any such provision. In addition, although it may not be intended, one of the consequences of the proposed amendments relevant to OEO firms may be to absolve OEO firms from any responsibility to detect unusual trading activity in a person's OEO account which may be the result of unlawful activity resulting from elder financial abuse, financial exploitation, undue influence or the result of diminished mental capacity.

FAIR Canada also recommends that the Proposed PLRs regarding complaints should be reviewed and amended in light of the recent joint CSA, IIROC and MFDA Staff Notices 31-351 and NI 31-103 and, moreover, both IIROC and the MFDA should review and consult publicly with respect to their rules dealing with client complaints.

IIROC Continuing Education Rules - Proposed Amendments

FAIR Canada has  commented on IIROC's latest consultation on its continuing education ("CE") requirements. FAIR Canada believes that initial proficiency requirements should be addressed at the same time as CE requirements are reviewed and recommends that IIROC engage in a thorough, public review of proficiency standards, rather than only engaging with stakeholders on revising CE requirements. FAIR Canada would like to see consultation with retail investors and their advocates, as well as disclosure of benchmarking to other jurisdictions.

FAIR Canada has also articulated that it finds IIROC's timeline and method for changing CE requirements confusing, since various CE changes have been proposed concurrently through the proposed PLR Rule book and other consultations.

FAIR Canada believes that core competencies should always be required in IIROC's CE program, and recommends that IIROC's CE program address the need to protect vulnerable investors who may be subject to elder financial abuse, financial exploitation, undue influence or diminished mental capacity by adopting one of the recommendation made in FAIR Canada and the Canadian Centre for Elder Law's recent  Report on Vulnerable Investors that received widespread stakeholder support, namely mandatory education and training to address cognitive decline, and possible elder financial abuse.

FAIR Canada, PIAC, CARP and Kenmar Associates Urge Response from OBSI JRC to Independent Reviewer's Recommendations

FAIR Canada, the Public Interest Advocacy Centre, CARP, and Kenmar Associates have issued a  letter  to the OBSI Joint Regulators Committee ("JRC") urging the JRC to make public its response to the Independent Evaluation of the Canadian Ombudsman for Banking Services and Investments' (OBSI) Investment Mandate (the "Battell Report"), released on June 6, 2016. All the aforenamed organizations urge the JRC to make public its response to the Battell Report's recommendations and make public the specific work the JRC is doing to further them, especially with regard to reforms that will enable OBSI to actually secure redress for investors in Canada. Additionally, the JRC is asked to indicate its expected timeline to actionize the recommendations.
Media FAIR in the Media
Dave Hodges of The Canadian Press writes in an article appearing in The Globe and Mail, CTV News and the Investment Executive that volatility on global stock markets in early February may be the catalyst that warns investors about the impact of fees on returns, as regulators have not been able to accomplish this yet through initiatives like CRM2. The article cites FAIR Canada's position supporting a ban on embedded commissions.

Clare O'Hara of The Globe and Mail reports that regulators are moving slowly in relation to discount brokerages that charge clients for advice they do not provide. Frank Allen, FAIR Canada Executive Director, comments in the article that the time is now to level the embedded advice fee-paying field for DIY clients of discount brokerages.

Frank Allen, FAIR Canada Executive Director, is quoted in an article by Jacquie McNish and David Wighton of The Wall Street Journal regarding Thomson Reuters Corp. selling a piece of its financial and risk business to Blackstone Group LP for $17 billion.

James Langton of the Investment Executive reports on a letter by FAIR Canada, the Public Interest Advocacy Centre, CARP and Kenmar Associates to the OBSI Joint Regulators Committee urging the committee to make public its response to a series of reform recommendations in the June 2016 report of Deborah Battell.

Wolf Depner of the Victoria News writes about the increasing prevalence of elder financial abuse and cites portions of FAIR Canada and the Canadian Centre for Elder Law's joint report on Vulnerable Investors.

Marian Passmore, FAIR Canada Director of Policy and COO, is quoted in a story by Gordon Hoekstra of the Vancouver Sun regarding lack of criminal prosecution in cases related to investment fraud.
Hayley Woodin of Business Vancouver, reports on the growing prevalence of elder financial abuse, citing FAIR Canada and the Canadian Centre for Elder Law's joint report on Vulnerable Investors.

Gerv Tacadena writes for Wealth Professional Canada about FAIR Canada and the Canadian Centre for Elder Law's joint report on vulnerable investors, and the need for Canadian securities regulators to tackle the "rampant cases of financial abuse in the country." Comments in the article by Marian Passmore, FAIR Canada Director of Policy and COO relate to the need for a conduct protocol, establishing procedures for how vulnerable clients can be identified and protected.
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