Canadian securities industry watchdogs now have a bigger bite and a louder bark thanks to beefed up budgets and more staff.
“There's a get-tough attitude being instilled in all branches of the Ontario Securities Commission [OSC],” says John Hall, an attorney with Borden Ladner Gervais in Toronto.
Since Canada lacks a national securities commission, the OSC is considered the country's leading regulator. After being granted self-funding status in 1999, its budget has skyrocketed to $46 million from only $19.9 million in 1996-'97. Staffing has also increased by a third.
“We're not trying to play ‘gotcha’ with the industry,” says OSC spokesperson Frank Switzer. “The message we're trying to send is that we want to work with the industry to make sure the compliance culture is a strong one.”
The OSC's more aggressive stance comes at a time when brokers are under increased scrutiny due to a high level of investment activity and lack of disclosure of customer complaints.
Last year, the Investment Dealers Association of Canada (IDA), the self-regulatory body that oversees 190 brokerages, received more than 1,100 complaints about brokers. As of March, the IDA had 222 outstanding investigations and 140 ongoing prosecutions.
But unlike in the United States, customer complaints and investigations are not publicly reported. That state of affairs is likely to change (see “Disclosure of Complaints Coming,” Page 40).
The IDA has also come under attack. The group was criticized in an OSC audit about lax enforcement standards and delays in bringing cases.
IDA President Joe Oliver says changes are under way. The organization has hired a consultant to conduct an operational review of the enforcement branch and is now beefing up its processes. “The regulatory bar is being raised,” Oliver says.
In addition, the OSC's enforcement agenda is reaching beyond brokerage and into the planning world. It has proposed a new rule to govern the use of the phrase “financial planning” and introduced a new regime for getting accredited as a planner.
Lawyers, however, say the OSC's new get-tough attitude could backfire. Hall says it has caused some people to “be a little more reluctant to go to the regulator.” Before, firms that proactively told regulators about incidents “used to score some points.” Now, he says, the regulators may “whack you over the head.”
*** Disclosure of Complaints Coming
Under a proposed rule, a select group of Canadian brokerages will soon have to file quarterly reports disclosing certain types of client complaints.
The move affects about 190 firms that are members of the Investment Dealers Association of Canada (IDA). The change is about being “more proactive and transparent” to investors, says Joe Oliver, president of IDA, the self-regulatory body that oversees those firms.
Oliver says the proposed rule won't cover “service complaints.” Rather, it's designed to smoke out sales-practice complaints such as unauthorized trading and suitability issues.
Currently, IDA rules do not require firms to disclose such complaints. In the United States, brokers must publicly report customer grievances that allege damages of $5,000 or more or that the employing firm determines could be worth $5,000 or more.
Public scrutiny has increased due to revelations that the IDA has 57 ongoing investigations involving BMO Nesbitt Burns brokers, one of whom reportedly had more than 100 customer complaints. BMO spokesperson Joe Barbera says 42 of those brokers are no longer with the firm, which employs more than 1,600 brokers across Canada.
Under the new disclosure rule, which will likely be adopted at a meeting this month, notices of disciplinary hearings and allegations about broker complaints will be made public. More enforcement staff will also be hired.
“We felt we should bolster our operations,” Oliver says.
