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Penalties needed


Paul C. Bourque
Financial Post

November 1, 2004

Re: "Investors Need Faith in SROs," Oct. 15.

Diane Urquhart's article deserves a response. Investors should have confidence in the work of self-regulatory organizations, but that confidence must be based on transparent reporting and accountability. There is no securities regulatory organization in Canada that provides more information and is more accountable to provincial governments than the Investment Dealers Association of Canada.

First, let's get the facts straight. The only legislative power the provincial governments "delegate" to the IDA is registration of brokers -- and even that is only delegated in B.C., Alberta and Ontario. The provincial governments do not "delegate" securities industry compliance and enforcement.

Ms. Urquhart suggests that the IDA should not be given more effective tools to collect fines until private investors are provided similar powers. This suggestion confuses penalties for regulatory misconduct with investor compensation for investment losses.

In the past three years, the IDA has completed 165 discipline cases and imposed over $12 million in fines. If investors are to have faith in SROs, there must be an effective way to collect penalties imposed for misconduct. The IDA already has the power to file its discipline decisions as orders of the court in Alberta. We need this power to more effectively collect fines in the rest of Canada. However, more effective fine collection for SROs will not assist investors in obtaining compensation.

Discipline fines are imposed for regulatory wrongdoing and misconduct. There may be no financial loss, but penalties may still be appropriate. Or the loss may have been made good by the firm before the matter is resolved by discipline. The fact a client may have been compensated, however, does not mean wrongdoing should not be punished.

By all means, let's improve the remedies available to investors to obtain compensation where appropriate, but it's just as important for investors that SROs have the powers they need to fulfill their public-interest mandate to protect investors.

Paul C. Bourque, senior vice-president, member regulation, Investment Dealers Association of Canada.