IDA spends it's credibility, changes its name to IIROC

Index of forum topics, talk to us.

Postby admin » Sun Jul 27, 2008 7:28 pm

From: Stan Buell
To: George Bentley, Expert Panel
Cc: Ken Kivenko (ON) ; Art Field (N.P.S.C.F.) ; Marie Smith (U.S.C.O.) ; Dan Braniff (CFRS) ; Hon. Marjory LeBreton ; Hon James Flaherty
Sent: Thursday, July 24, 2008 9:14 AM
Subject: Regulatory nonsense - Investment industry exploits the law

Expert Panel

While we have already made a formal submission, inevitably it is impossible to cover all the issues in a brief submission. The latest legal test for the regulatory regime results in another failure for the regulators. A copy of the Report on Business article indicating the court's decision that the IDA can not discipline former members is appended.

It is time for the Canadian Government to revisit regulation regarding the financial services industry and create a regulator that is not designed solely to mislead the public by providing ineffective regulators.

While the industry/regulators misleads Canadians with headline grabbing fines, the fact is only a small percentage of regulatory fines was ever collected.

It is hard to believe that intelligent people would accept that a regulator is unable to discipline a member when the member resigns.

The SROs are redundant with regard to regulation and investor protection.

The perpetrators can make a fortune by breaching the rules and then simply resign from the SRO to escape punishment?

This makes the SROs absolutely useless. They are unable to get victims money back so the victims are left to using the courts. But if they can not discipline perpetrators, what use are they?

They can be used by industry to mislead the public seems to be the only reason for their existence.

When will the Canadian Government awake to the fact that millions of Canadians are losing billions of dollars each year due to investment industry fraud and wrongdoing?

When will the Canadian Government wake up and provide some funding to the few who are speaking out for investors and trying to precipitate change? The regulatory regime is costing hundreds of millions of dollars each year and is still ineffective from preventing fiascos like Bre-X, Nortel, Portus, Crocus, mutual fund market timing, Livent, ABCP fiasco, amongst many others. They also fail to get victims money back leaving victims with civil action as the only option. The recent reduction in limitation periods does nothing to help victims who need time to deal with such a life-altering issue, and yet the regulators allowed this legislation to slip quietly by without a word on behalf of investors even though the OSC had taken the initiative to gain an exemption from the limitation period reduction.

Why do the industry/regulators regularly gain exemption from the law? This is just another indication that the current regulatory regime is failing Canadians.

Surely the ABCP crisis should convince Canadians that the industry is not only taking advantage of small investors but also pension funds and institutional investors.

Who pays in the end? The small investor. Not the high paid managers who create fiascos and escape with golden parachutes.

I sincerely hope that the Expert Panel will realize that a National Regulator based upon the current provincial models will not protect investors.

It is painfully obvious that a National Authority to protect investors and enforce rules and regulations is required.

The SROs established to regulate members is a farce. That is so because they are created by industry, and staffed by industry people to serve the industry. Their claim to provide investor protection is stuff of nonsense.

Stan Buell, President
Small Investor Protection Association
P.O.Box 325, Markham, ON, L3P 3J8
tel: 905-471-2911
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Postby admin » Tue Jul 22, 2008 8:38 am

Submission to the Expert Panel on Securities Regulation
Laureen Snider
Professor of Sociology
Queen’s University
Kingston, Ontario
K7L 3N6
Phone: 613-533-6000, local 75091
Fax: 613-533-2871

Preferred Language of Communication: English
Permission to Post Comments on Web Site: Yes
July 13, 2008

This document outlines, first, the characteristics of effective regulation overall; second the essential ingredients for financial services and securities regulation.

The regulatory agency has become an essential tool of governance today. In a wide variety of sectors, governments attempt to direct and control the activities of business through different statutory regimes, via agencies using strategies ranging from friendly advice to criminal charges. The targets of regulation, the companies in each sector, respond to government regulation in a variety of ways, from total engagement/compliance to overt or covert resistance and defiance. Overall levels of compliance vary, first, with the history and internal organization of a particular business, its sector, size, profitability and geographic location; second with the characteristics of the regulatory agency, specifically its size, history and resources; and third, with the nature and strength of 3rd parties invested in the regulatory process – for example, NGOs, trade and professional associations, pressure, interest and protest groups (Braithwaite & Drahos, 2000; Gunningham et al, 2003; Gunningham & Johnstone, 1999; Shapiro, 1984; Hutter & Jones, 2006; Hall & Johnstone, 2005; Noble, 1985, 1986; Simpson & Grabosky, 1995; Haines, 2003; Parker, 2002; Purcell et al, 2000; Shover et al, 1986 Simpson, 2002; Vaughan, 1998; Sanchez, 1998; Post, 1998).

Because the Panel has no mandate to tackle the internal organization of companies, fixing the regulatory process and institutionalizing 3rd party involvement must be its primary foci. It has become increasingly obvious that incorporating non-governmental third parties, parties that do not represent the interests of either business/industry or government, is an essential component of effective, efficient regulation. Third parties have already been incorporated into many other regulatory sectors: environmental groups are represented as stakeholders in the Canadian Environmental Protection Act, patient groups are intermediaries between hospitals and medical associations, unions between employers and government in occupational health and safety regulation. Comparable regulatory systems elsewhere (see Pamela Reeve’s Submission on the Financial Services Consumer Panel in the United Kingdom) have successfully incorporated the most logical third party, the retail investor, into financial regulation. Canada is one of the few Anglo-American, common-law systems of financial regulation still reliant on an outdated bipartite model of regulation.

Decades of study by scholars in a number of disciplines have documented the “added value” of structurally incorporating third parties into regulatory systems (Ayres and Braithwaite 1992; Braithwaite and Grabosky 1993; Clinard and Yeager 1980; Coleman 1987; Condon 1998; Daniels and Macintosh 1991; Daniels and Morck 1996; Grabosky 1995; Gunningham and Johnstone 1999; Parker 2006; 2002). From the pioneering work of Australian sociologists/criminologists John Braithwaite and Peter Grabosky – see their studies in Corporate Crime: Contemporary Debates (eds. L. Snider & F. Pearce, University of Toronto Press, 1995) - to U.S political scientist Malcolm Sparrow, Canadian regulatory gurus such as Bruce Doern (School of Policy Studies, Carleton University), Stefan Wood (Osgoode Hall Law School, Toronto), and Joan Brockman (School of Criminology, Simon Fraser University), there is near-universal consensus – an unheard of phenomenon in the contentious the academic world. In the words of Peter Grabosky:
"Overt enforcement of law is but one element in a web of constraint, some of whose strands are barely discernible, and many of which are non-governmental." (1995)

When integrated into the regulatory equation third parties play a vital role in mitigating the phenomenon of “capture”, a well-documented and virtually inescapable fact of regulatory life (Ayres and Braithwaite 1992; Snider 1993; Coleman 1987; Parker 2002). In the literature “capture” refers to the tendency of the regulatory agency to adopt the position, and identify with the interests of the regulated. It occurs over time, when regulators and the regulated come to know each other too well. Thus each party can anticipate the position of the other and incorporate it into the regulatory agenda. This creates an overly cautious regulatory system, one that loses track of the larger public interest the agency was established to represent.

Inserting third party interests into the system short-circuits “capture”, introduces new voices, different stakeholders, and brings the larger public interest back in. However to be effective, third parties must be “embedded”, that is, they must be in a position to “observe regulatory decision-making processes, monitor regulatory treatment and disposition of complaints, or force the hand of regulators." (Sparrow, 2000). Logistically this means they must have the power to take issues to a higher authority such as an independent civilian oversight board, and/or to the public through media, if they feel the interests of the stakeholders they represent or the larger public interest are in jeopardy.

Even more crucially, they must be funded: there is presently no funding available for third-party non-governmental oversight of securities regulation and enforcement (i.e. by consumer/retail investors or representative groups). Thus far this essential public role has fallen, by default, to hard working, hard pressed voluntary groups such as the Small Investor Protection Association run by Stan Buell and run by Rob Kyle (both established in 1998).

The role of third parties is particularly significant in a regulatory environment where there have been problems with weak enforcement. Securities regulation is Canada is certainly one such entity (Nicholls 2006; Sibold 2005; Andrews 2006; Snider 1993, 2005, 2006a, 2006b, 2008). The history of Bill C-13, the failure of the RCMP’s Integrated Market Enforcement Teams (IMET), and the fragmented nature of stock market regulation in Canada – the only developed country without a federal securities regulatory body (Phelps et al. 2003) – have critically weakened investor confidence in Canada’s markets. Again we see near-universal consensus among the experts, in this instance on the lenience, uncertainty, expense and delay that characterize Canadian stock market regulation. As Cory and Pilkington (2007) conclude: "It is clear from publicly available sources and from our consultations as a whole, that credible and well-informed individuals sincerely believe that there have been and continue to be, serious defects in Canada's securities enforcement systems."

Introducing and institutionalizing third party involvement in securities regulation is not an attack on regulatory officials. Properly conceptualized and developed, third parties reinforce regulatory power. They help regulators do the job they are obligated by statute to do. Indeed, no group is more cognisant of the problems of securities regulation in Canada today than regulators – they confront the dilemmas of investor confidence, the difficulties of securing compliance and the paucity of enforcement mechanisms on a daily basis. In a recent interview study (Snider 2008), enforcement staff had no problem describing the difficulties they face. A few sample quotes:
- ‘There is no meaningful deterrence’ (Interview, February 2006).
- “We work hard on creating culture of compliance, [but] they develop culture of non-compliance” (Interview, March 2006).
- “Culture of compliance? How about a culture of defiance!” (Interview, May 2006).

In democratic states today, regulation is generally cyclical. Each new corporate crisis tends to generate a new round of regulations, laws and sanctions – in securities regulation, for example, the post-2002 accounting scandals associated with Enron and Hollinger Inc which produced Sarbanes-Oxley in the United States, Bill C-13 and IMET in Canada. In other sectors the same phenomenon has occurred – Bill C-45 following the Westray Mining Disaster in 1993, new environmental regulations after the the Exxon Valdez oil spill. Unfortunately this has resulted, in many business sectors, in a profusion of complicated, sometimes obsolete, often contradictory regulations that benefit primarily the corporate Bar. This makes the goal of this Expert Panel, to secure maximum compliance at minimum cost, a daunting task indeed. Incorporating non-governmental third parties into financial regulation is the best way to ensure that citizen interests are represented. Indeed it is an essential component in securing an effective, publicly-responsive, cost-efficient regulatory system.

Andrews, Neil (2006) “Corporatism and the Toronto Stock Exchange: A New Ontario Egg Board? Australian Journal of Corporate Law, 19: 65-113.
Ayres, Ian and Braithwaite, John (1992). Responsive Regulation: Transcending the Deregulation Debate. Cambridge: Cambridge University Press.
Braithwaite, J. (1989). Crime, Shame and Reintegration. Cambridge: Cambridge University Press.
Braithwaite, J. & P. Drahos (2000) Global Business Regulation. Cambridge: Cambridge University Press.
Braithwaite, John and Grabosky, Peter (1993). Business Regulation and Australia’s Future. Sydney: Australian Institute of Criminology.
Clinard Marshall and Peter Yeager, (1980) Corporate Crime. New York: Free Press.
Coleman, John (1987) “Towards an Integrated theory of White-Collar Crime”, American Journal of Sociology 93: 406-39.
Condon, Mary (1998) Making Disclosure: Ideas and Interests in Ontario Securities Regulation. Toronto: University of Toronto Press.
Cory, and Pilkington, (2007). "Critical Issues in Enforcement", Commissioned Paper for the Allen Commission.
Daniels R. and J. Macintosh (1991) “Toward a Distinctive Canadian Corporate Law Regime”. Osgoode Hall Law Journal, 29:863.
Daniels R. and R. Morck (1996) Canadian Corporate Governance Policy Options. Discussion Paper #3, Industry Canada, March.
Grabosky, Peter (1995). "Using Non-Governmental Resources to Foster Regulatory
Grabosky, Peter & John Braithwaite (1986). Of Manners Gentle: Enforcement Strategies of Australian Business Regulatory Agencies. Melbourne: Oxford University Press.
Gunningham, N. & Johnstone, R. (1999) Regulating Workplace Safety: System and Sanctions. Oxford: Oxford University Press.
Gunningham, N., R. Kagan , D. Thornton (2003) Shades of Green: Business, Regulation and Environment. Stanford: Stanford University Press.
Haines, F. (2003) “Regulatory Reform in Light of Regulatory Character: Assessing Industrial Safety Change in the Aftermath of the Kader Toy Factory Fire in Bangkok, Thailand.” Social & Legal Studies 12 (4): 461-87.
Hall, A. & R. Johnstone (2005), “Exploring the Re-Criminalizing of OHS Breaches in the Context of Industrial Death”, forthcoming.
Hutter, B. & C. Jones (2006), “Business Risk Management Practices: The Influence of State Regulatory Agencies and Non-State Sources”. Paper presented at Law & Society Annual Meetings. Baltimore, July 6-9, 2006.
Nicholls C. (2006) The Characteristics of Canada’s Capital Markets and the Illustrative Case of Canada’s Legislative Regulatory Response to Sarbanes-Oxley. Canada: Task Force to Modernize Securities Legislation in Canada, June 15.
Noble, C. (1985). “Class, State and Social Reform in America: The Case of the Occupational Safety and Health Act of 1970”, Research in Political Economy 8: 145-62.
Noble, C. (1986). Liberalism at Work: The Rise and Fall of OSHA. Philadelphia: Temple University Press.
Parker, Christine (2006) “The ‘Compliance ‘Trap: The Moral Message in Responsive Regulatory Enforcement”, Law & Society Review, 40(3).
Parker, Christine (2002). The Open Corporation: Effective Self Regulation and Corporate Citizenship. Cambridge: Cambridge University Press.
Post, J. ed. (1998). Research in Corporate Social Performance & Policy, v15. Stamford, Conn: JAI Press: 45-88.
Purcell, K., Clarke, L., & L. Renzulli, (2000) “Menus of Choice: The Social Embeddedness of Decisions”, in M. Cohen, ed., Risk in the Modern Age. London: Macmillan: 62-82.
Pearce, F. & L. Snider (1995). Corporate Crime in Canada: Contemporary Debates. Toronto: University of Toronto Press.
Phelps, M., H. McKay, T. Allen, P. Brunet, W. Dobson, E. Harris, M. Tims, (2003) It’s Time: Report of the Committee to Review the Structure of Securities Regulation in Canada. Canada: Department of Finance, December.
Sanchez, C. (1998), “The Impact of Environmental Regulation on the Adoption of Innovation: How Electric Utilities Responded to Clean Air Act Amendments of 1990”, in J. Post, ed. Research in Corporate Social Performance & Policy, v15. Stamford, Conn: JAI Press: 45-88.
Shapiro, S. (1984). Wayward Capitalists: Target of the Securities and Exchange Commission. New Haven: Yal University Press.
Shover, N., Clelland, D. & Lynxwiler, J. (1986). Enforcement or Negotiation: Constructing a Regulatory Bureaucracy. Albany, NY: SUNY Press.
Sibold, S. (2005) “Addressing the Burden of Regulation in Canada -The Case for Proportionate Regulation.” Submission to The IDA Taskforce to Modernize Securities Legislation in Canada (October 24).
Simpson, S. 1989. “Corporate America”, Social Forces 65: 493-563.
Simpson, S. (2002). Corporate Crime, Law and Social Control. Cambridge: Cambridge University Press.
Simpson, S. & Grabosky, P. (1995) “Bad Policy from Bad Science”, International Journal of Sociology of Law.
Sparrow, Malcolm (2000). Regulatory Craft. New York: Vintage.
Snider, Laureen (1993). Bad Business: Corporate Crime in Canada. Toronto: Nelson.
Snider, Laureen (2006a) “This Time We Really Mean It! Cracking Down on Stockmarket Fraud”, in H. Pontell & G. Geis, eds., International Handbook of White-Collar Crime. London: Springer/ Kluwer Scientific Publishers: 627-48.
Snider, Laureen (2006b). “Relocating Law: Making Corporate Crime Disappear”, in E.
Comack, ed., Locating Law, 2nd edition. Halifax: Fernwood: 128-53.
Snider, Laureen (2005). “The Criminological Lens: Understanding Criminal Law and
Corporate Governance”, in J. O’Brien, ed., Governing the Corporation: Regulation and
Corporate Governance in an Age of Scandal and Global Markets. London: J. Wiley:
2005: 163-85.
Snider, Laureen (2008) “Accommodating Power: The “Common Sense” of Regulators”, Social and Legal Studies 18(2), forthcoming.
Vaughan, D. (1998) “Rational Choice, Situated Action and the Social Control of Organizations”, Law & Society Review, 32 (1): 23-61.

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Postby admin » Tue Jul 22, 2008 8:16 am


Topic: Captured regulators, failed practices, predatory behavior by professionals, self serving by those who self police

Will Canada's new financial regulatory system be comprised entirely of industry players, i.e., those who profit from the work they regulate, or will the public interest be fairly represented in future?

Will industry players be required to define clearly what duty of care is owed to the public? Are financial service providers required to act in the best interests of the client, or are they merely taking advantage of the client, as a salesperson might?

Why is it that a member of the financial services industry can approach, apply and receive legal exemption to our securities laws, from our provincial securities commissions, while members of the public who may be hurt by these same legal exemptions are told they cannot deal directly with this same crown corporation? The public is dealt second tier financial protection by each provincial securities commission.

Will exemptions to our securities laws continue to be granted to financial players without public input or public notice, even to those investment holders who may be adversely affected by circumventing our laws?

Who will undertake investigations into thousands of legal exemptions granted by the thousands to benefit industry players, often to the detriment of the public interest? (see site on “orders, rulings and decisions”) ... _index.jsp

Will self regulatory agencies continue to be allowed to deceive the public into thinking that these industry sponsored agents (like Investment Dealers Associations, Mutual Fund Dealers Associations etc) are focused on protection of the public interest?

Will this new single securities regulator continue to delegate public complaints of fraud, investment abuse etc, directly to the industry self-regulatory agencies, even if statutory authority resides with the commission?

How is it that over 90% of the “advisors” who market financial products in Canada are actually licensed by the securities commissions in the category of “salesperson”. (see OSC registration categories on web site to find out how your representative is licensed) Why are they allowed to misrepresent their roles to the public? ... _index.jsp

Why is it that self-regulatory agents (some registered in Ottawa as trade and lobby groups) of the industry were allowed open door access and involvement into RCMP investigations into complaints against the very industry they work for and represent? Is this not a case of financial desperado's being allowed to participate in their own investigations in Canada.

Why are criminal acts such as fraud and forgery not always referred to independent police agencies, but rather left to the self-regulators to deal quietly with or not deal with at all? ... _index.htm

Why, during the last decade or two, were 80% of all mutual funds allowed to be sold to the public, using the highest cost choice to the customer (DSC or deferred sales charge option), if the majority of these investments were supposedly sold under the advice of a “trusted professional advisor”?
Are they not professionally obligated to advise of the lowest cost alternative to the client when two identical mutual funds are available?

(source, Investment Funds Institute of Canada IFIC)

Why were over 90% of all mutual fund sales in 2007, made in products like “wrap” accounts, which include proprietary funds, (house brand funds), if the client interest is truly “first” as many financial players purport. Studies by the OSC conclude that profits to the industry are between twelve and twenty six times higher when the public is sold the house brand fund rather than an independent fund. (OSC Fair Dealing Model, Appendix F, pages 10,11, compensation bias) (source, Investment Funds Institute of Canada IFIC) ... /24306.asp

When over 90% of financial services business in Canada is done by one of five or six large banks, why is it that the record of enforcement or other decisions against this same group (by self regulatory bodies) numbers less than 2% against these five or six large players? Over 98% of actions are against bit players or individuals who make up less than 10% of the market? viewtopic.php?t=41&postdays=0&postorder=asc&start=30 see forum post mar 10, 2008

Why is it that it takes a 1600 hour course and up to nine months in some provinces to become licensed as a hairstylist, while a financial salesman can complete a home study course and be ready for licensing in 30 to 90 days?

Why can this same 90 day financial graduate then misrepresent his license category and call him or herself an “advisor” without meeting the provincial Securities Act requirements of an “advisor”?

These questions and others are put forward in the interests of public protection from financial predators and those who police themselves, serve themselves whilst maintaining a pretense of protecting the public.

We feel that these and countless other indiscretions in the Canadian financial system are fundamentally wrong and abusive to the public interest as well as the profession. We feel that Canada's current system of financial regulation is an example of self-regulation and self-serving at its very worst. These "worst practices" allow financial fraudsters to abuse and violate the public trust regularly and without penalty in Canada. (see, Canadians suffer from “One Million Frauds”, Globe and Mail Oct 3, 2007 with only one person convicted until the end of 2007 (Canadian Business editorial Aug 13/27 2007). It also may help explain why ex RCMP IMET commercial crime experts say that Canada is a “A Good Country for Crooks”, (Canadian Business Cover story, Sept 24, 2007)
We seek to affect positive change for the benefit of the public interest.

We represent over 1000 financial industry employees, experts and others, many who must remain anonymous or risk retaliation and termination from this industry.
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Banking interests wish to preserve ability to self police

Postby admin » Tue Jul 15, 2008 6:22 pm

Now it appears that the banking sector has finally figured out that the game of policing themselves is nearing an end. Consumers are starting to catch on to the con and might not accept it much longer.

Their solution? To admit wrong and try to set things right? Nope. To turn sail and claim that they now support a single securities regulator.

Do they do this with the public interest in mind? Not in my opinion. I fully expect that they will ride this new wind all the way towards a single regulator, which they will pay for and control to exactly the same extent that they now pay for and control each and every provincial and territorial securities regulator.

It will be exactly the same con game of "we police ourselves" that they have run for decades now. The same game that has allowed billions to be transferred from a trusting and vulnerable public into their hands. The new game will just have one self serving referee instead of thirteen.

What will we have improved?

see press release below from earlier today

Canadian Bankers Association - Time for a Canadian Securities Commission; Passport system of regulation falls short

For Immediate Release
July 15, 2008

Toronto, ON - In its submission to the Expert Panel on Securities Regulation, the Canadian Bankers Association (CBA) today called for the federal government to create a single securities regulator, a Canadian Securities Commission, to enhance Canada's competitive advantage internationally.

"We agree with the federal government that it's time to take a fresh look at securities reform in the broader context of enhancing Canada's ability to compete internationally," said Nancy Hughes Anthony, President and CEO of the Canadian Bankers Association. "A single Canadian Securities Commission that would enhance efficiency, increase confidence in the markets and allow regulators to respond more quickly to market events would improve the productivity of the Canadian economy and our international competitiveness as a result."

In its submission, the CBA notes that Canada can no longer afford to maintain the current system of 13 securities regulators with 13 sets of regulations if it wishes to remain competitive and attract global investment dollars.

"The current impasse on securities reform is simply unacceptable when you consider the key role efficient capital markets play in promoting economic development," said Ms. Hughes Anthony.

According to data from the International Monetary Fund, if Canada were regulated and viewed internationally as a single market, it would rank after the U.S., the U.K, Japan, France and China. But broken down as individual provinces, which is what our current regulatory system does, Ontario's market is smaller than Italy, Alberta's is smaller than the Netherlands, Quebec's is comparable in size to Denmark and B.C. is the equivalent to that of Ireland.

Passport system failing

Moreover, the passport model of securities regulation now in place outside Ontario is not delivering the benefits that a single regulator would, either for Canadians who are seeking opportunities to build their financial future, or for entrepreneurs and businesses seeking capital to grow and create jobs.

"The existing passport model of securities regulation simply doesn't deliver, especially for small- and medium-sized businesses (SMEs) and individual investors, particularly in Quebec and smaller provinces," said Ms. Hughes Anthony. "Over 90 per cent of capital market transactions take place in more than one province or territory so it makes sense that our regulatory structure should reflect this economic reality."

In addition, the CBA's analysis of public company data found that retail investors outside B.C., Alberta and Ontario are limited in their ability to participate in initial public offerings (IPOs). In the year before the passport system was implemented, retail investors in the remaining provinces were able to participate in between 67 per cent and 77 per cent of IPOs. Over the four years of the passport system, retail investors outside of the main jurisdictions, particularly in Quebec and the smaller provinces, have had less and less access to IPOs. However, under a single regulator, retail investors across Canada would have open access to these securities.

The fragmented system in Canada also has a negative impact on Canadian firms' attempts to raise capital by imposing unnecessary costs, and this burden falls disproportionately on SMEs since there are clear economies of scale in developing and filing securities offerings.

Enhancing Canadian Competitiveness

A single securities regulator would make it easier to allow for additional positive reforms including:

Making it easier to move towards a principles-based approach to regulation instead of the current system of prescriptive rules - a move that would lead to a more competitive and flexible regulatory system.

Allowing Canadians more efficient and cost-effective access to foreign securities for their investment portfolios by removing some of the hurdles towards creating mutual recognition agreements that would allow for free trade in securities.

The International Monetary Fund, the Organization for Economic Co-operation and Development and Canada's own Competition Policy Review Panel have all recognized the benefits of a single regulator for Canada since it would eliminate inefficiencies and reduce costs for market participants.

Moreover, Canada is out of step with other countries around the globe which are moving ahead with securities reform. Of the approximately 100 countries that are represented on the International Organization of Securities Commissions, Canada is the only country without a national securities regulator.

The CBA's submission to the Expert Panel on Securities Regulation can be found at the following link: /en/content/reports/080715%20-%20Enhancing%20Canadian%20Competitiveness_FINAL.pdf <> . The CBA research on the impact that multiple regulators have on the cost of raising capital for small businesses can be found here: /en/section.asp?fl=4&sl=269&tl=278&docid= <>

The Canadian Bankers Association works on behalf of 51 domestic chartered banks, foreign bank subsidiaries and foreign bank branches operating in Canada and their 257,000 employees to advocate for efficient and effective public policies governing banks and to promote an understanding of the banking industry and its importance to Canadians and the Canadian economy.

- 30 -

For more information:
Melanie Minos, Canadian Bankers Association
Tel: (416) 362-6093, ext. 220
Cell: (416) 587-7733
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Postby admin » Sun Jul 13, 2008 10:02 am



July 13, 2008
Fair Game
The Fannie and Freddie Fallout
IT’S dispiriting indeed to watch the United States financial system, supposedly the envy of the world, being taken to its knees. But that’s the show we’re watching, brought to you by somnambulant regulators, greedy bank executives and incompetent corporate directors.

This wasn’t the way the “ownership society” was supposed to work.

Investors weren’t supposed to watch their financial stocks plummet more than 70 percent in less than a year.
And taxpayers weren’t supposed to be left holding defaulted mortgages and abandoned homes
while executives who presided over balance sheet implosions walked away with millions.
Over the course of this 18-month financial crisis, we have lurched from land mine to land mine. Last week’s was all about Fannie Mae and Freddie Mac, the giant government-sponsored enterprises set up to provide affordable housing across the nation. By issuing debt, these shareholder-owned companies guarantee or own more than $5 trillion in home mortgages. Got that? $5 trillion.

Because the federal government established the companies, investors view them as backed, at least implicitly, by taxpayers. And that implied guarantee is what drove Fannie and Freddie’s business models.

The advantages the companies gained from this unique arrangement were huge. They had to keep less cash on hand than traditional lenders, for example. They also made more money on their mortgages than lenders because they paid less to borrow money in the bond market. These profits enriched Fannie and Freddie shareholders over the years and bestowed significant wealth on the companies’ executives.

Now it looks as if the bill for that largess is coming due. Of course, it will be borne by the usual bagholders: United States taxpayers. You and me.

For years, anyone warning that Fannie and Freddie should beef up their financial positions was ridiculed or run over by the lobbying machines these companies kept oiled and close at hand. So their lucrative arrangement remained the same: business as usual, with all its riches, was the goal. After all, wasting money by inflating their cash cushions would just crimp their style.

Suddenly, Fannie and Freddie’s relatively anemic capital supply is a concern. Last week, Fannie’s stock plummeted to $10.25, down 74 percent in 2008. Freddie’s shares also dived, closing at $7.75, a loss of 77 percent this year.

Even as investors were stampeding out of these stocks, the claque in Washington rushed to reassure them. Both Ben S. Bernanke, the Federal Reserve Board chairman, and Henry M. Paulson Jr., the Treasury secretary, said the mortgage giants’ regulators confirmed that the companies were “adequately capitalized.”

THAT was supposed to signal that the companies wouldn’t have to raise capital immediately because regulators had the problem firmly in hand. But investors have good reason to be skeptical. In the first half of 2007, both Mr. Bernanke and Mr. Paulson sang a similar tune when they opined that problems in the mortgage market were “contained” to subprime loans.

Talk of adequate capital also brings to mind comments made last March, when Bear Stearns was on the ropes, by Christopher Cox, the chairman of the Securities and Exchange Commission. He tried to calm investors by telling them that Bear Stearns passed financial muster. Days later, the firm was toe-tagged.

Which brings us to the main problem: credibility. Wall Street and our senior regulators seem to be running out of that precious commodity almost as quickly as cash.

It wasn’t as if this problem came out of left field. Fears that Fannie and Freddie were getting too big have been a recurring theme in recent years. And Congress has had ample opportunity to create a new regulator that would be vigilant about ensuring the safety and soundness of both companies.

But even after both companies were found to have accounted for their results improperly, Freddie Mac in 2003 and Fannie Mae in 2004, Congress failed to act. As a result, Fannie and Freddie were allowed to become high-growth companies and stock market darlings.

“These companies would have been fine had they been forced to be the cyclical utilities they were intended to be,” said Josh Rosner, an analyst at Graham-Fisher, an independent research firm in New York. “They would be healthy and able to help the markets in this time of illiquidity.”

Instead, they are in trouble and their woes are infecting the entire stock market.

The surprise is not that Fannie and Freddie grew too large for the taxpayers’ good. That was to be expected among companies run by executives whose pay is based on profit growth.

Rather it is that Congress and the various financial regulators, especially the Fed and the Office of Federal Housing Enterprise Oversight, did little to keep the companies from getting out of control.

MAYBE the loans held or backed by Fannie and Freddie will turn out to be better performers than those held by other lenders. That would mean fewer losses than investors seem to be anticipating now and would still the cries for fresh capital.

But if their losses follow the patterns seen at other lenders, some sort of regulatory takeover may occur. That would mean a lot of pain for a lot of folks — especially both companies’ stockholders and the broader community of people depending on a secure, smoothly functioning mortgage market.

“The real outrage is that none of this had to happen,” said William A. Fleckenstein, co-author of “Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve” and president of Fleckenstein Capital in Issaquah, Wash. “We did not have to ruin the financial system and ruin the financial lives of a huge chunk of the middle class in the United States.”

“It is crystal clear that the Fed not only made mistakes, they had the pompoms out, cheering for deregulation,” he adds. “Until people recognize why we are in this mess, I don’t see how we get out of this thing.”

A week ago, Bridgewater Associates, a research firm, estimated that losses from the credit crisis we’re now mired in might amount to $1.6 trillion when all is said and done.

We’ll have to wait years to see if this is accurate. But whatever the number is, it will also represent, in stunning red ink, the cost to society of financiers who are shortsighted and greedy and regulators who don’t regulate.
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Self Regulation allows desperate interests to self police

Postby admin » Sat Jul 12, 2008 8:55 am

I will post a few similar but unrelated news items about self regulation here. They are intended to illustrate what history has taught us about self regulation. Effectively, self regulation allows some of the smartest, richest, and often most desperate business people to regulate and police themselves. Instead of serving the public interests, self regulation usually ends up by being morphed over time to serve the interests of those business people who are the most desperate to succeed.

I suggest that financial services is now almost totally captured and morphed into a system which offers little to no protection from predatory financial practices in Canada.

Transport Canada is another example to watch for in the coming years. Do you know that the bureaucracy at Transport is beginning to allow air operators to "inspect" themselves? Wait ten years and see what kinds of horrors that might produce.

Below is an article found recently about the food inspection industry. Thanks fo reading along.

Whistleblower was right about threat to our food


Friday, July 11, 2008

The A section of Wednesday's newspaper carried an article about a Canadian Food Inspection Agency biologist who had been fired. The reason: After 20 years of reliable service, he had raised an alarm about potential problems if food inspection and labelling were turned over to industry.

How unbelievable that this government agency would consider it appropriate to allow manufacturers and suppliers to safeguard our food supply when we are bombarded with stories of unsafe foods. Self-regulation doesn't work.

Perhaps this man, Luc Pomerleau, should have taken the information not to his union but to the news media, which might have given it more serious attention.

As it is, food inspectors have been reduced in numbers over the years, and it is significant that this idea would germinate as a cost-cutting measure.

What about our health?

Ruth Sherwood
Retired dietitian
North Vancouver

Biologist fired for circulating document
Plans for food inspections found on computer

Kathryn May, Canwest News Service

Wednesday, July 09, 2008

OTTAWA - Confidential documents unsecurely posted on the Canadian Food Inspection Agency's computer network laid out sensitive plans to turn over food inspections and labelling to industry and led to the firing of the scientist who stumbled upon them.

Luc Pomerleau, a biologist with a 20-year "unblemished record" in government, said he was fired last week for "gross misconduct" and breaching security because he sent the documents to his union. Mr. Pomerleau, who is a union steward, was also deemed "unreliable," which means he no longer has the security clearance to do his job or work again in the public service.

The documents appear to involve a reorganizing of food inspection that will shift more of the onus for food safety to the suppliers that manufacture and distribute food and other products. It's a direction the agency has been heading for years and the union has long voiced concerns about the impact of such a shift on jobs and the food safety of Canadians.

The changes are part of the government's strategic review, which requires departments to find savings worth 5% of their operating budgets to be reallocated to priorities of the Harper government. The document, marked confidential, is a letter from Treasury Board secretary Wayne Wouters to CFIA president Carole Swan, explaining that the government approved the proposed cuts, but warned some have "communication risks" so will have to be deferred until a communication plan is ready.

CFIA spokesman J. P. St-Amand, citing privacy reasons, wouldn't comment on the firing except to say "due process was followed," including an investigation into how the documents landed in the hands of a "third party."

In an interview, Mr. Pomerleau said he stumbled on the document on the server in a directory that could be accessed by any of the agency's 6,500 employees. He said he assumed the document couldn't still be confidential or it wouldn't have been scanned and left there for anyone to find. He said the document was marked with a small "confidential" stamp in the right hand corner.

"If the document wasn't there and the people in charge of the document had taken care of it properly, I wouldn't have seen it," he said.
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Postby admin » Sat Mar 15, 2008 5:24 pm

IDA is wide open for suit from individual investors, in the eyes of this reporter:

quote from previous post:
"Consequently, individuals do not have
grounds for action against regulators who have acted in good faith and in
the public interest. “

It may be fairly easy for some clients to show that regulators (like the IDA, or provincial commissions) have at times acted both in bad faith, and also acted contrary to the public interest. That is becoming clearer and clearer as each day goes by. Self regualtory agencies become "captured" by the very industries they regulate, and their public interest mandate becomes self interest when no one is watching.

see reference site for research
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Postby admin » Sat Mar 15, 2008 5:19 pm

Subject: This is our analysis of IDA position re OBSI Terms of Reference
IDA against expanding OBSI’s role in systemic abuse cases

The IDA doesn’t want OBSI mucking around really big financial assault
issues. We quote from the IDA Comments re proposed changes to OBSI’s Terms
of Reference :

“…In the event that OBSI uncovers an issue or course of conduct which
appears to have broad industry-wide implications, we believe that OBSI
should alert the applicable regulator so that the matter can be properly
considered and appropriate regulatory action undertaken…”

And just what responsibility does the IDA say it has to individual investors
when it receives such information? In Sept. 2002 the IDA said this in a News
Release: after an abused investor wanted to sue the IDA for inaction
regarding a brokerage that cost him severe financial losses:

“Today’s court ruling affirms the IDA’s position in this matter. Regulators
must be free to regulate fairly and effectively in the public interest
without fear or concern that they will be subjected to legal action from
individual clients”, said Senior Vice President Member Regulation Paul
Bourque. Today’s decision follows recent Supreme Court of Canada decisions
that while regulators have an obligation to act in the broader public
interest, they do not have a duty of care to individual clients of the
organizations that are regulated. Consequently, individuals do not have
grounds for action against regulators who have acted in good faith and in
the public interest. “

Source: ... 260_en.pdf

This means, according to the IDA, that OBSI has no duty of care to individual
investors and has NO accountability for investor losses due to negligence,
delay or inaction. So naturally they want OBSI to send pattern complaints to
them. They can’t be held responsible, do not provide restitution and can
refer you to their troubled arbitration system that limits cases to just
$100,000. The IDA says total arbitration costs (including a filing fee, the
arbitrator's hourly rates, room rentals and other disbursements) can be
expected to range between $3,000 to $4,000 [ ho,ho, ho] for a typical
dispute. Costs are generally split equally between the parties, but the
arbitrator can make a different determination. The IDA however warns that,
as with the costs for arbitration, the arbitrator, at his or her discretion,
may assign one party’s legal costs to the other party in the arbitration.

Cost to use OBSI = ZERO. OBSI financial award limit = $350,000
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Postby admin » Mon Mar 10, 2008 6:35 pm

1. there are approximately 500 disciplinary bulletins going back to 1999 with the IDA.
2. Of these 500, 10 (ten) applied to the top five banks
3. this is a number equivalent to 2%

How do I correspond that to the statistic that somewhere between 90% and 97% of the financial transactions in Canada flow through the big five banks? When 98% of SRO disciplinary bulletins do not involve these banks? Does that mean that the SRO's are captive to these players, or are these five players several orders of magnitude more honest than their counterparts?? If disciplinary action against the major IDA sponsors (the top banks) were in the 90% range, it would indicate a direct correlation. What the numbers seem to indicate is that either bank firms are 4500% more honest than those small players that get disciplined.................or that the IDA is simply unable to discipline it's top member firms. Those of us who have worked inside the industry know all to well which of these statements is more likely.
(my numbers stand to be corrected, and I look forward to hearing from you, but the numbers are probably only relevant for illustration purposes anyway. The real problem lay elsewhere)

Each time I see another IDA disciplinary action, I cannot help but notice that it is against a small player, a small firm, or a lone broker. Almost never is it against a major firm. Not even a major firm sanctioned when the lone broker works for one of the big firms, and when the firm may in fact be condoning the behavior. It just seems to be that the IDA is a paper tiger who snaps at minnows, while letting the big fish swim free.

The UN Convention on Transnational Organized Crime, Article 2 defines "organized criminal group" as follows: a group having at least three members, taking some action in concert (i.e., together or in some co-ordinated manner) for the purpose of committing a ‘serious crime’ and for the purpose of obtaining a financial or other benefit.
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Postby admin » Wed Jan 16, 2008 11:46 pm

particularly noteworthy are the educational requirements for new recruits at the IDA in Alberta: "would you like fries with that?"

IDA staffing shortages concern CSA

January 16, 2008 | Mark Noble

Canada's provincial security regulators collectively released their respective audits of the Investment Dealers Association (IDA) on Tuesday. While it was a much more complimentary report than a June audit released by the Alberta Securities Commission (ASC), it still highlighted some core areas in which the IDA needs to improve, particularly in staffing and resources.

Tuesday's report was compiled by the Canadian Securities Administrators (CSA) and included the audits of the IDA's three offices, located in Toronto, Montreal, and Vancouver, by the Autorité des marchés financiers (AMF), British Columbia Securities Commission (BCSC), Nova Scotia Securities Commission (NSSC) and Ontario Securities Commission (OSC). The audits were conducted in September and October of 2006.

Although the IDA is a national regulator, each of its offices falls under the jurisdiction of different provincial regulators, which can have slightly different regulation philosophies and each levy its own registration fees.

Overall, the commissions offered only a handful of recommendations that they classified as high priority. There was a consistent concern about a decrease in IDA's productivity, often due to limited staffing.

Staffing was a big issue for the OSC's audit of the Toronto head office. According to the OSC, the IDA has a high turnover of staff, which is having a detrimental impact on its performance.

"The OSC staff noted high staff turnover levels during the period under review, due to several factors, including sales compliance officers accepting positions with member firms, resulting in delays in issuing sales compliance review reports and preventing the sales compliance department from completing all the reviews scheduled," the report says.

R elated Stories

CSA report finds IDA deficiencies

ASC audit reveals IDA deficiencies

The OSC says 81% and 79% of the sales compliance review reports issued in 2004 and 2005, respectively, were issued within 15 weeks of the completion of field work; however, only 33% of reports issued between January 1 and August 31, 2006, were completed within 15 weeks.

The IDA wrote in its response that it is trying to actively recruit more qualified people.

With respect to retaining staff, steps were taken to identify and rectify compensation disparities in individual circumstances, and various automation projects and procedural changes have been and are being introduced to assist staff to operate more efficiently, the IDA wrote. "In addition, a recommendation for three additional sales compliance managers was approved for the 2007–08 budget year."

Staffing was also identified as an issue for the regional offices. The AMF noted the IDA is falling behind in meeting its performance benchmarks on the sales compliance side. The AMF wants to see the IDA increase staffing for the Montreal office by at least one sales compliance officer. In its view, this would allow the IDA to review a greater number of branches and have sufficient staffing in place in case of an emergency.

Sagging sales compliance performance was the only high priority concern of the BCSC of the IDA's Vancouver office.

"BCSC staff are concerned about the low productivity of the Vancouver sales compliance department. As a result, there is some delay in the coverage of its membership, especially some of its higher risk B.C. members," the report noted.

Unlike the AMF, the BCSC believed a review of IDA processes and productivity should suffice, rather than hiring on new staff.

On the enforcement side, the AMF said the IDA needs to allocate more resources to its Montreal office to deal with the loss of one of its three enforcement counsels, who is on sick leave and left 10 open cases on hiatus. The AMF noted the Montreal office was still exceeding its benchmark of having 60% of cases processed within 10 months.

Of course, staffing was also a recurring theme of the ASC's audit of the Calgary office, which was released in June, but that report was much more vocal in its criticisms. The ASC acknowledged there is a labour shortage in Alberta, but it still found some of the IDA's employees ill-equipped to do their jobs.

"Interviews with registration officers identified a wide range of proficiency and knowledge among the individuals. The knowledge gap was not due, entirely, to different levels of experience in the position," the ASC wrote. "When asked about specific submission types, the individuals who did not fully understand the registration process continually referred to checklists in order to answer the questions. This highlights both a lack of staff proficiency and the shortcomings of the department's training program."

The ASC took exception to the IDA's hiring qualifications — for example, the job description for a registration officer requires high school and/or community college diploma and "one year's progressive, related experience within the securities industry."

"The IDA should not expect a high school graduate with one year of experience to read and fully understand complex IDA bylaws and multilateral instruments," the ASC wrote.

The IDA defends its hiring practices, though.

"Generally, we believe we are hiring the right level of qualification and experience. Our education requirements for registration officers are the same as the provincial securities commissions'. We agree staff should have an understanding of high-level registration concepts; however, we do not believe these concepts are difficult to understand," the IDA wrote in its response.

Not only did the ASC want the IDA to address the high level of turnover and poor quality of employees, but it also wants the regulator to increase the numbers of dedicated managers overseeing the office.

The ASC took offence to the fact that the Calgary office was essentially a sub-office to the IDA's Vancouver office. The IDA appointed the Vancouver-based vice-president of Western Canada as head of the Prairie Region office.

"ASC staff were concerned when, during an interview, the vice-president, Western Canada, opined that he does not add value to the registration department and generally refers difficult registration questions to the vice-president, sales compliance and registrations, or the director, registrations, both of whom are based in Toronto," the ASC audit said.

The ASC wants assurances that regulatory decisions that concerned Alberta were being made by staff who deal directly with the Prairie Region office. The IDA tried to remedy this situation by hiring a director of the Calgary office in July.

It should be noted, the IDA plays a much more active role in enforcement in Alberta than it does in other jurisdictions. The regulatory stakes are higher. For instance, the IDA has the authority in Alberta to file disciplinary decisions with the courts so that they have the same effect as if they were orders of the court, as well as the power to compel third parties and third-party witnesses to produce documents and attend disciplinary hearings.

The IDA has plans to meet all of the recommendations from the CSA. Paul Bourque, senior vice president of member regulation for the IDA says the SRO started to hire people as early as November 2006.

"Our response to this kind of thing is two-fold. We either hire more staff or we put in place more efficient processes. I believe we have the staff we need to do the job here," Bourque says.

"I don't we think we have a turnover problem at the IDA generally. I think we have them in different departments and in different cities," he continued. "For example, we are having a tough time recruiting financial and compliance examiners in Calgary. So is everybody else. It's hard to single out the IDA for those sort of issues. Our turnover at the IDA has basically been about 10 to 20%. I'm quite comfortable with that."

Filed by Mark Noble,,

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Postby admin » Sat Dec 08, 2007 11:59 am

Breach of privacy complaint goes nowhere
December 01, 2007
Industry whistleblower James MacDonald says he was betrayed.
At a recent public forum in Toronto, MacDonald took the opportunity to tell David Wilson, chair of
the Ontario Securities Commission, why the system let him down.
The former BMO Nesbitt Burns investment adviser discovered evidence of what he described as
"alleged illegal activity" by a senior person within the industry. He said he dutifully reported his
findings by phone – in a voicemail – to the Investment Dealers Association (IDA), a selfregulatory
organization accountable to the OSC.
Within hours of that message being left, he said he received an email message from his branch
manager at the bank asking MacDonald why he contacted the IDA. MacDonald was shocked to
learn that his confidential message had been brought to his employer's attention.
"As an employee, I was trying to do my part and I was betrayed," MacDonald, microphone in
hand, told Wilson.
MacDonald continued, explaining he had written two letters to Wilson to complain about this
breach of confidentiality. Both times he received a reply from someone else at the OSC who
advised MacDonald to deal directly with the IDA, which was the subject of his complaint. "You've
washed your hands totally of this," MacDonald said to Wilson.
Wilson advised MacDonald that if the IDA can't resolve his issue he should feel free to phone the
OSC contact centre and file a complaint. "Or," added Wilson, "write me a letter."
MacDonald later told the Star he has little confidence in the ability of Canadian enforcement
agencies to adequately protect investors. "Canadians would be better off if we just disband
everything and subcontract the work to Eliot Spitzer and the U.S. Securities and Exchange
Commission." - Business - Breach of privacy complaint goes nowhere Page 1 of 1 12/1/2007
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Postby admin » Wed Aug 08, 2007 4:56 pm

What happens to those like Gordon Simpson (an ex-firefighter from Calgary) when the IDA breaches their recognition order in Alberta?

Mr. Simpson was an investor who felt that he had been wronged by an investment firm. In particular, Mr. Simpson felt that there had been commission “churning”. He made a complaint to the IDA. The IDA purported to look into the matter but it is unclear from the case as to whether any investigation whatsoever was conducted. The process appears to have been very brief. Mr. Simpson’s original complaint letter was written April 26, 2004, and on May 7, 2004, the IDA staff wrote a letter to Mr. Simpson:

“After due consideration of the facts under review, IDA enforcement staff determined that no further action would be taken. Accordingly, our file in respect of this matter has been closed”.

Section 73 of the Securities Act provides for an appeal from a decision of a self-regulatory organization such as the IDA. The appeal is to the Commission. Mr. Simpson wanted to appeal the fact that the IDA took no action on the matter. One would think from a common sense perspective that would be a normal type of issue for an appeal.

Interestingly, and by way of further correspondence, the IDA wrote to Mr. Simpson:

“Please be advised that as a not for profit organization with limited resources, the IDA cannot formally investigate all complaints brought to its attention”.

This should be contrasted with the conditions regarding the recognition of the IDA and its obligation to maintain a staff complement sufficient to ensure proper investigations.

Mr. Simpson attempted to carry on with his appeal but the IDA argued that a refusal to carry on with investigating a complaint was not actually a “decision” and therefore could not be appealed. The Commission accepted that argument and refused to hear Mr. Simpson’s appeal. I have seen no indication that this decision was challenged further in Court. If it is correct, it would effectively mean that any refusal of the IDA to move forward with a complaint could never be appealed to the Commission and could only be challenged by way of a process called “judicial review”, which is essentially asking the Court to exercise supervisory jurisdiction over the IDA. The difficulty with a judicial review application is that the Court normally shows great deference to the tribunal involved believing that the tribunal has substantial expertise in the area in question. Accordingly, challenges would not likely be successful unless something as extreme as perhaps bad faith or an actual bias or conflict of interest could be shown.

When the IDA breached the terms of its Recognition Order in Alberta - the only Order by which they derive any authority at all - there are many that suffer, like Mr. Simpson and yet everyone seems to overlook the numerous victims and the damages that flow from such a breach.

Will the ASC, having concurrent jurisdiction, investigate Mr. Simpson's complaint since the IDA seemingly failed to do so, and in so doing, breached their recognition Order.

Who is looking after retail investors in Alberta if it is not the IDA? Will the ASC revoke the IDA's recognition and, if not, why not?

Furthermore, why should Mr. Simpson - and investors in general - suffer the consequences of the IDA's breach? Just because the IDA hires more staff, to re-attain the conditions of recognition, it does not remedy the improper actions of the IDA or those damages which flow from that breach.

What is the ASC prepared to do remedy the above?


Robert Kyle
Founder & Chair
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Postby admin » Wed Aug 01, 2007 5:28 pm

ASC audit reveals IDA deficiencies
July 31, 2007 | Bryan Borzykowski
Normally, the Investment Dealers Association of Canada cracks down
on industry rule-breakers, but what if it's the association that needs a
reprimand? On Monday the Alberta Securities Commission released a
report outlining deficiencies with the prairie region IDA's practices.
Everything from registration to staff turnover and enforcement issues
was covered in the audit, which is usually conducted every three
years. While most of these issues are serious, Diane Urquhart, an
independent analyst who has been studying regulation issues for
three years, says a few are more concerning than others.
Urquhart is alarmed by the section titled "Consistency of Settlement Agreements — Forgery."
In that part of the report, the ASC says that one forgery case originally resulted in a
reprimand, while another, which involved a designated person forging a signature and
misleading the IDA, ended with a warning letter.
"Forgery is a breach of the Canadian Criminal Code," says Urquhart, who added that this was
the most alarming part of the report. "Forgery is a criminal matter. This shouldn't have even
been looked at within the IDA system. It should have been referred to the RCMP."
The ASC says the IDA violated its own rules in this case. "Only one of these cases was
brought before a hearing panel," says the report, "and the settlement reached in this case did
not fall within the IDA's prescribed guidelines for forgery."
Warren Funt, the IDA's vice-president for Western Canada, says any criminal matters are
passed on to the police. "When a criminal offence occurs, we refer the matter. We do so even
though in certain circumstances we would be surprised if police acted."
Funt adds that there are two types of forgery issues — one that involves fraud and another
that is simply a case of a dealer filling in a missed signature for his or her client — and that
the two are dealt with differently. "A forgery is not always a forgery," he says. "It's not that
simple in most circumstances."
Other than forgery issues, the ASC says that it found many case assessment files with
missing information. The commission says case assessments should "stand alone" and offer
a complete record of why an action occurred.
Another concern deals with inconsistent punishments. Under the title "Issue Identification,"
the ASC says in one particular case, the IDA's decision, which involved issuing a letter and
then closing the file, was not "appropriate given the circumstances of the case and the nature
of the information provided to the IDA. The case appeared to warrant further investigation and
Funt says that while every case is different, the organization does try to keep things
consistent. When coming to an enforcement decision, he says, the IDA relies on precedence,
and it refers to its discipline guidelines.
Still, Urquhart doesn't think enough is being done to crack down on corruption. She says selfregulation
doesn't work. "You've got the IDA conducting investor protection enforcement in
the name of public interest, but their primary goal is to protect the reputation of the industry."
Funt admits that the IDA has issues that need to be addressed, but it's working toward
resolving the ASC's complaints. He says more communication with the ASC will help and that
the "more fundamental areas we have been working on regardless."
The ASC and IDA have also agreed to hold quarterly meetings, at which they're likely to
address audits and other pressing issues.
Filed by Bryan Borzykowski,,
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Postby admin » Tue Jul 31, 2007 2:16 pm

The Alberta Securities Commission Audit of the Investment Dealers Association Prairie Region 2007 dated June 11, 2007 , was released by the ASC yesterday, July 30, 2007. The IDA Prairie Region 's Enforcement Division has the same serious deficiencies as Alberta Auditor General Fred Dunn found at the the ASC itself.

On April 26, 2007, the National Pensioners & Senior Citizens Federation (450 clubs and chapters with 1,000,000 members), the United Senior Citizens of Ontario (1000 clubs with 300,000 members) and the Small Investors Protection Association jointly requested a national inquiry on the malfunctioning of Canada's securities and accounting regulation and white collar crime enforcement system.

Diane Urquhart

Independent Analyst

Tel: (905) 822-7618

Cell: (416) 505-4832

See these sections of the ASC Audit of IDA Prairie Region 2007:

5.0 Case Assessment

5.1 Issue Identification (Significant Deficiency)

During the review period, the ASC referred a significant file to the IDA regarding a gatekeeping issue. ASC correspondence was addressed to the Investigations branch, due to the nature of the allegations involved. Upon receipt, Investigations sent the file to Case Assessment for review. After reviewing the file, a decision was made at the Case Assessment level to issue a caution letter and close the file. This decision did not seem appropriate given the circumstances of the case and the nature of the information provided to the IDA. The case appeared to warrant further investigation and attention.

We request that the IDA explain what steps are being taken to ensure that files referred by ASC staff are given sufficient attention in the Enforcement department.

5.2 Failure to Notify ASC Regarding Outcomes (Significant Deficiency)

We reviewed all four files that the ASC referred to the IDA during the review period. It was noted that when the significant file listed above was concluded, no notification was sent to ASC staff. Pursuant to the recognition order, the IDA is required to report any decisions, orders or rulings that arise from complaints or referrals of complaints from residents of Alberta to ASC staff in a timely manner.

The IDA should review its procedures for notifying referring regulators when matters are concluded.

5.3 Lack of Documentation

During the course of the review, we noted several instances where files had information gaps due to lack of documentation, including documentation of significant verbal conversations. Concluded Case Assessment files should stand alone, offering a complete and accurate record of the reasons for taking action or closing a file.

We request that the IDA revisit its policy on documenting files, including verbal conversations, and report any changes that will be implemented to address this concern.

6.3 Consistency of Settlement Agreements -- Forgery (Significant Deficiency)

According to IDA documentation, eight forgery files were prosecuted during the review period. We reviewed two of these concluded litigation files and another file that was concluded after the completion of our fieldwork. In one file, the individual entered into a settlement agreement with Enforcement Counsel which included a reprimand and costs of the investigation as terms. This settlement agreement was rejected by the Hearing Panel for being too lenient. The Panel determined that the settlement did not correlate with the

severity of the charge. Counsel negotiated and agreed upon a new settlement that included a penalty, close supervision and costs of the investigation. The Hearing Panel accepted this re-negotiated settlement agreement.

In another file involving similar circumstances, the ultimate designated person of a firm forged a signature and misled IDA staff. The IDA issued a warning letter and closed the file.

These two cases had similar fact patterns and yet the action taken by the IDA was inconsistent from one case to the next. Only one of these cases was brought before a hearing panel and the settlement reached in this case did not fall with the IDAs prescribed guidelines for Forgery. Given that these guidelines were not followed we request that the IDA explain the purpose of the guidelines, how often settlements stray from these guidelines and what action is taken when negotiated settlements do not fall within the guidelines.
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Postby admin » Mon Jul 30, 2007 11:43 pm

ASC Releases Oversight Review of IDA Prairie Office

11 June 2007

"Throughout the report we have highlighted certain deficiencies as significant. Significant deficiencies are findings that fit into one of the following categories:

Contravention of the terms of the delegation or recognition orders

Items that may effect the IDA's ability to continue to meet the terms of the delegation or recognition orders

Significant procedural deficiencies

Repeat findings that the IDA has not sufficiently addressed

Supervisory issues"
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