Five reasons for a national regulator

The Association of Canadian Compliance Professionals and the Investment Funds Institute of Canada held their 10th annual Compliance Forum in Toronto this week, with a number of hot-button issues taking centre stage.

Joel Wiesenfeld, a partner at Torys LLP, pulled no punches in setting the tone for his talk on recent trends in compliance and enforcement. Securities regulation at the SRO level, he said, is subject to a host of extraneous pressures, which include “the sometimes heavy-handed oversight of the provincial securities commissions, the invective of investor advocates, the always critical and over-generalizing media, and the hyper-reactive, consumer-oriented politicians.”

Wiesenfeld spent considerable time discussing the enforcement implications of the proposed national securities regulator, suggesting it comes down to five key considerations.

The first concerns the state of oversight of the SROs. At present, IIROC and the MFDA are granted jurisdiction to regulate dealers and individual registrants in each province through recognition orders issued by the provincial securities commissions. Periodically, the provincial securities commissions, through the Canadian Securities Administrators (CSA), conduct oversight reviews of the SROs.

For Wiesenfeld, the most recent oversight review of the MFDA—in which the provincial regulators for Alberta, Manitoba, Saskatchewan, New Brunswick, Nova Scotia, Ontario and B.C. had a hand—reads like an operating table nightmare.

“Imagine going into surgery, and instead of one surgeon with his or her hands mucking about inside you, with various other doctors and nurses providing a support role, there’s seven. Imagine what will be left of you after that,” Wiesenfeld said, adding that “it’s only common sense that a single regulator with an oversight review function of the SROs would be more efficient, logical and coherent.”

Wiesenfeld’s second point concerns reciprocal orders, which grew out of the fact that each provincial commission only has jurisdiction within its own territory. “If the OSC issues an order against a respondent with various sanctions, such as a restriction from acting as an officer or director for a period of time, or a monetary sanction, another province can essentially import the terms of the OSC order into an order of its own, without any further hearing on the merits of the case or without having to enter into a settlement agreement with a respondent,” Wiesenfeld explains.

Reciprocal orders only make sense, he argues, if the terms of the original order are not extended, and if the monetary sanction or costs levied against the respondent are not duplicated.

The problem, according to Wiesenfeld, is that some of the provincial commissions are extending the original orders in their reciprocal orders. “This leaves the respondent in the position of having to fight on multiple fronts, just when he or she or the dealer thought the matter was completed. Having a national regulator would eliminate the whole concept and need for a reciprocal order.”

The third issue also points to regulatory mission creep on the part of the provincial commissions. There’s been a tendency of late, Wiesenfeld says, for some of the provincial commissions to open files, conduct investigations, and institute proceedings in matters that are traditionally SRO enforcement cases.

“My speculation is that this has occurred in jurisdictions were the provincial commission has not been terribly active on the enforcement side, but in this politically charged atmosphere wishes to flex its muscles and show the fact that it’s alive, thereby justifying its continued existence. The provincial commissions are wading into what for them is uncharted territory, and the positions they are taking are sometimes truly bizarre.”

Wiesenfeld’s fourth point concerns no contest settlements. Currently all Canadian securities regulators—both provincial commissions and SROs—require settlement agreements with respondents to contain admissions of both facts and regulatory liability or misconduct, as well as agreement concerning sanction. This stands in sharp contrast, Wiesenfeld explains, to the usual way of settling these matters in the U.S.—the no contest settlement, where the respondent neither acknowledges nor denies any facts or misconduct, but accepts the sanction.

Wiesenfeld notes that in a recent speech, the new chair of the OSC, Howard Wetston, suggested that enforcement staff are considering the possibility of allowing settlements that don’t involve a requirement for respondents to admit facts or regulatory liability. But this is tantamount to pruning only one branch of a very big tree, Wiesenfeld argues.

“If in fact the OSC did change its practices—and I emphasize that the current state of affairs of requiring admissions is a staff practice, and is not embodied in any securities laws or legislation—we would still have the other provinces and the SROs in a regime that requires admissions. If we had a national securities regulator that accepted a no contest settlement option, we would have a unified way of dealing with these matters.”

Wiesenfeld concluded by rejecting the idea of efficient coordination of multiple investigations of the same cases.

“We’re still living in an era where from time to time there are multiple securities regulatory investigations of the same matters. Regulators can talk from now until doomsday about cooperating with each other on these multiple investigations. But the fact of the matter is they each have their own agendas, they seek their own ends and the target of the investigation is always the loser,” he said.

“A national securities regulator would end this type of scrum, where the target is the ball, kicked about by the regulators.”