Time for a regulatory overhaul: CFA chair

By Steven Lamb | January 13, 2011 | Last updated on January 13, 2011
2 min read

Canada’s securities regulation regime is in dire need of an overhaul, as individual investors question whether the system is rigged against them, according to the chair of the board of governors of CFA Institute.

Speaking to The Canadian Club in Toronto today, Marg Franklin called for the creation of a single national securities regulator in Canada.

“I would commend Finance Minister Flaherty for his determination in attempting to make this happen, given the vehement opposition by a small but nonetheless influential group, and the small amount of political currency he and his party will win by doing this,” she said. “It is one of the rare instances where the right thing appears to trump the politically expedient thing.”

But a single regulator would only be useful if it is also given real enforcement powers. The biggest problem with the current enforcement regime is that most of its staff are woefully under-qualified.

Franklin called for a complete overhaul of the RCMP Integrated Market Enforcement Teams (IMET), which was introduced with great fanfare in 2003. Since then, IMET has managed to charge just 26 individuals with 1,008 counts of capital markets fraud. The conviction record is even poorer, though: there have been only five. And the cost of IMET, as at March 31, 2009, has been in excess of $100 million.

“When we look at enforcement investigators employed by provincial administrators, it is striking how many have limited experience with the industry or many of its practices,” she said. “Too many investigators employed by regulators here and nationally are former, even retired law enforcement staff, with negligible backgrounds in the securities industry.

“Obtaining the Canadian Securities Course should be a minimum requirement for this type of employment.”

To that end, she announced that the CFA Institute will offer discounted educational programs to regulatory staff, which will equip them with the benefits of the CFA program body of knowledge. These discounted programs were already available in the U.S. for SEC staff, but this is the first time they have been offered to Canadian regulators.

Finally, she said that when wrong-doers are caught, penalties must be meaningful and – more importantly – enforced.

At present, the self regulatory organizations share a pathetic track record on the collection of fines, as offenders can simply quit the industry to avoid paying. The MFDA has managed to collect just 38% of penalties it has imposed, while IIROC has collected only 20%.

“We believe, with the goal of enhancing enforcement, IIROC and the MFDA should be granted the statutory ability to collect fines…and of course, this would be greatly facilitated by a national single regulator,” she said, admitting that the CFA Institute also struggles to collect fines levied against charterholders who have been expelled.

Steven Lamb