Investors Scrutinizing the Regulators

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Fox Guarding the Hen House


Investor group seeks to curb IDA power

Complaint concerns


Sinclair Stewart and Peter Fitzpatrick

Financial Post


April 9, 2001

An organization representing small investors wants the Ontario Securities Commission to curtail the enforcement powers of the Investment Dealers Association, and assume responsibility for hearing and resolving consumer complaints.

Stan Buell, president of the Small Investors Protection Association, chastised the IDA for being sluggish in its treatment of complainants, and said the brokerage industry should be policed by an independent regulator with the power to conduct audits and order swift restitution in the case of wrongdoing.

"We have members who have been waiting for almost two years to get a response [to their complaints] from the IDA. I mean this is terrible. What we're saying is that the IDA doesn't seem to be objective, and we feel it's got to be an independent regulator."

The criticisms come just days after the Financial Post revealed that the IDA is investigating supervisory procedures at BMO Nesbitt Bums in the wake of more than 100 complaints against one of the firm's brokers in Winnipeg.

The IDA has been under steady fire since last summer, when an OSC report raised a number of concerns about the self-regulatory body's enforcement branch and suggested the need for "significant improvements" in its corporate governance.

A subsequent review of the IDA's practice, conducted by an independent consultant, said the enforcement division was plagued by "a lack of trained and experienced investigators," and warned that a backlog of open cases was approaching a crisis.

A spokesman for the OSC declined to comment yesterday on whether the provincial regulator aims to take a more active role in policing the industry.

But Ian Bruce, a member of the IDA's member regulation oversight committee, said the association is capable of doing its own enforcement.

"The issue of whether or not you think somebody else can do it better, whether it's a securities commission or a totally independent party, is a question that's a self-regulatory question. Is the self-regulatory organization being effective or not is the real question, and my view is yes," he said, noting the enforcement function has been beefed up in light of the recent reports on the IDA.

"I think it has a lot of focus within the IDA organization itself at the board level, with the public directors, with industry directors of the board, within the executive committee and within the oversight committee," he said.

Still, there will always be pressure for regulatory vigilance to improve because of the explosion in the number of participants in the capital markets over the past couple of years, combined with tougher rules on such things as disclosure.

"The industry has worked extremely hard to keep up," he said, noting enforcement departments are growing and the size of fines has increased dramatically.

"No matter whether you're talking the securities industry, or the medical society or the law society, you're always going to have people who are not going to be conformists in terms of dealing within the rules.

"The question is whether you can catch those things as quickly as possible and right the wrongs and deal with them effectively."

But Ed Nelles, vice-president of SIPA, said the current backlog of complaints at the IDA only be exacerbated by the recent market downturn, making it all the more pressing for the OSC to seize control of enforcement powers and implement a more streamlined complaints procedure. He added the IDA's lengthy processing times work in favour of brokerages, since many complainants tend to be seniors and do not have "a heck of a lot of time."

"If we were seeing x number of complaints in the good times, you're going to see x-squared or x-cubed number of complainants now, and it's going to become a snowball," he said. "And I think the OSC will have to take a view on action."