Investors Scrutinizing the Regulators

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Watchdogs flooded with ABCP woes


JANET MCFARLAND AND TARA PERKINS

Tuesday, April 8, 2008

Canada's banking Ombudsman and brokerage regulator are both contending with multiple complaints from individual investors who have been stuck holding commercial paper that's been frozen since August.

The Investment Dealers Association of Canada has received 88 complaints from investors whose brokers recommended they buy third-party asset-backed commercial paper (ABCP) investments, spokeswoman Connie Craddock said yesterday.

The agency, which is responsible for regulating financial advisers, is investigating some cases, but has not levelled allegations against anyone.

“This is an unusual situation where you've got so many retail investors all concerned about one issue, so it is an unusual and unique situation,” Ms. Craddock said.

The IDA is looking at complaints on a case-by-case basis to assess whether investors were provided with faulty information about the risks or suitability of investments.

While the IDA can sanction brokers for inappropriate behaviour, it does not recover lost funds for investors.

Meanwhile, the ongoing restructuring of the $32-billion market for non-bank ABCP is posing a challenge for the Ombudsman for Banking Services and Investments (OBSI).

Part of the difficulty is that the Ombudsman's job is to investigate complaints from financial sector clients who have lost money, and make recommendations on whether they should get it back.

It's not yet clear how much money – if any – ABCP investors are out.

The Ombudsman, David Agnew, has been watching developments closely.

He even signed up – out of interest's sake – for a chat group of ABCP investors on the social networking website Facebook.

Besides the restructuring plan for the sector, another key determinant of any investor losses will be the “relief plan” that's expected for the 1,400 clients of Vancouver-based brokerage Canaccord Capital Inc., a development that Mr. Agnew has been watching for.

“The clients of firms that we've received complaints about, their complaints haven't been dealt with because the firms have been waiting the outcome of this process to resolve those complaints,” Mr. Agnew said yesterday.

“This isn't your typical ‘I've got a problem with my broker' case,” he said.

OBSI posted a notice on its website Friday noting that it “has received several complaints from retail investors about asset-backed commercial paper.”

“We encourage any investor who wishes to complain about ABCP in their accounts to put that complaint in writing to their investment firm, along with any supporting documentation and notes, with a copy to OBSI,” it said.

OBSI can make recommendations for losses of up to $350,000.

It views itself as an alternative to the courts, and is aware that it could face a potential onslaught of complaints if the Purdy Crawford committee's plan to restructure the third-party ABCP market passes but certain investors remain unsatisfied.

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