Expert insight on CSA’s enforcement report

July 20, 2018 | Last updated on July 20, 2018
3 min read

It’s not easy to extract meaning about enforcement trends from CSA’s annual enforcement report—a point explicitly made by the regulator itself in its latest report.

“As with all types of enforcement reports, it is not an easy exercise to draw the right conclusions from the numbers themselves,” CSA chair Louis Morisset wrote in the introduction.

We consulted legal experts to get their interpretations of the report.

Read: Misconduct cases increase year over year: CSA report

As part of concluded matters, the report shows an increase in respondents for “registrant misconduct” after a downward trend in recent years: there were 21 in the 2017 calendar year, up from eight in 2016. (For purposes of CSA enforcement, registrants include portfolio managers directly regulated by provincial securities commissions, and advisors at exempt market dealers.)

Financial penalties for registrant misconduct went way up, to $6.8 million from about $104,000 the previous year. (The penalties in 2014—$7.5 million—and 2015—$2.5 million—were more similar to 2017.)

Laura Paglia, partner at Borden Ladner Gervais in Toronto, says multiple factors can cause fines to go higher or lower in any given year. For example, if mostly large institutions have been disciplined in a particular year, fines might accordingly be larger.

That said, “In enforcement, with the OSC in particular, there is a greater focus on size of fines,” says Paglia, typically to communicate the importance of a regulatory issue.

Gillian Dingle, partner at Torys in Toronto, says the numbers aren’t indicative of a trend. “There are so many factors at play,” she says, such as types of actions and length of investigations. “It’s tough to draw any clear pictures.”

More interesting are regulators’ statements of priorities, she says.

Read: OSC follows CSA’s client-focused reforms in priorities report

The table below shows selected enforcement highlights with previous-year comparisons. (All years are calendar years, and monetary figures are rounded.) Year to year, such things as case types, cases concluded and largest source of fines tend to be consistent.

Overall, Paglia describes the report as “short and rather high level” and thus “a report for general reading.”

CSA enforcement activity 2014 2015 2016 2017
Cases commenced 105 108 56 66
Criminal cases commenced None specified 6 10 8
Cases concluded 105 145 109 111
Fines, administrative penalties and voluntary payments $58 million $138 million (includes certain cases with large fines) $62 million $69 million
Largest source of fines Fraud ($25 million) Fraud ($68 million) Fraud ($37 million) Fraud ($21 million)
Restitution, compensation and disgorgement $66 million $112 million $350 million (includes four OSC no-contest settlements) $69 million
Jail time for Securities Act violations Five people received a total of about seven-and-a-half years 15 people received about 10 years 15 people received a total of 23 years 17 people received a total of more than 33 years
Jail time for Criminal Code violations None specified Four people received sentences ranging from 15 months to four years Nine people received a total of more than 16 years Eight people received a total of 14 years

Widening regulation’s focus

Enforcement numbers aren’t the sole focus of the report. Relative to other years, the latest makes “a greater effort to show CSA’s value outside of enforcement statistics—and that’s a positive,” says Paglia.

For example, the report details CSA’s efforts on binary options fraud and cryptocurrency threats. “There is a greater recognition of the growth and development of digital technology,” says Paglia, who expects the cryptocurrency focus will continue.

Read: CSA bans binary options

The report’s wider lens also includes technology’s role in enforcement, highlighting CSA’s update of its marketplace surveillance technology and its conference on best practices for data analytics.

“The better use they can make of data, the better they will be able to protect the markets,” says Dingle, noting the huge volume of market-generated data. And, with tech advances such as artificial intelligence, “the commissions’ abilities to regulate for market manipulation-type conduct is only going to get better,” she says.

Also read:

Regulators talk tech, with tips for dealers

How to make yourself invulnerable to liability