Jan. 13, 2005. 01:00 AM   

Brokerage group, slammed in audit, says faults fixed
Changes made, IDA argues
Critical investor not convinced



A scathing 2000 report on the Investment Dealers Association of Canada that was not initially released found the agency lacked structure and resources, and its investigators were unable to address a growing backlog of investor complaints.

But the IDA, which functions as both lobby group and self-regulator for the nation's brokerage industry and has long been accused of being secretive and soft on the investment community, says the problems have been addressed.

It says the audit, though it was never made public, led to changes including hiring additional employees and the creation of a new reporting system for industry problems.

"We have made a great many significant changes in our policies and procedures. We think we are accomplishing all our objectives and we have dealt with the issues raised in the report," Paul Bourque, senior vice-president of member regulation, said yesterday.

The audit was conducted by the Ontario Securities Commission, which oversees the IDA.

"It is staff's view that there is a need for significant improvement in the IDA's corporate governance and organizational structure and in the enforcement department," the report reads. Among its findings:

The IDA had no formal process in place to evaluate the effectiveness of the board.

The IDA has difficulty attracting and retaining professional staff. As a result, resources were stretched in all departments and staff morale was low.

There was no screening process for complaints.

At the time, the IDA's enforcement backlog was of particular concern. "The IDA does not have a plan in place to rectify the backlog even though the problem was noted in each of 1997, 1998 and 1999 self-assessments and was communicated by the OSC to the IDA in October 1998 as an issue to be addressed."

Also troubling was that in 1999, the IDA still did not have a uniform approach to reviewing its member branches, even though it had pledged to the OSC four years earlier that it would implement a "risk-based approach" to these reviews.

The association said it currently has no enforcement backlog. As well, under current rules, members have to report all client complaints, lawsuits and regulatory matters electronically. "So we have a complete database of all complaints coming through the member firms," Bourque said.

The brokerages that belong to the IDA agree to meet certain capital requirements, have supervisory structure and employ qualified professionals.
Investor Chris Morgis is skeptical that the IDA has changed. In March 2001, Morgis lodged a complaint with the IDA about his broker at Thomson Kernaghan. He did not hear back from the agency until a year later, after the Toronto brokerage filed for bankruptcy.

If the IDA has improved, "why are we still waiting for a report on what went wrong at TK?" he asked. "I still feel cheated. With other brokerage firms that have failed, they file a report. Why hasn't that happened in this case?" Morgis tried in 2002 to sue the IDA for negligence, but was unsuccessful.

Ontario's Information and Privacy Commissioner ordered the IDA audit released last summer, in response to a request from an unnamed investor. The OSC resisted the order and asked a court to review the decision.

The document was made public in late December after the OSC dropped its court challenge.

"With the passage of time and the resources we'd need on the file, we decided to discontinue the judicial review we had under way," OSC spokesperson Eric Pelletier said yesterday.