By David Clarke
April 3, 2006
OTTAWA - Could one province's
securities regulator undermine the effectiveness of a key national
That remains to be seen. But the Investment Dealers Association of
Canada, a Toronto-based self-regulatory body for brokerage firms, is
taking a Saskatchewan case very seriously.
Fearing a precedent that could spread nationwide, the association is
appealing a decision of a Saskatchewan Financial Services Commission
panel that doesn't recognize the association's power to discipline its
former members after they have left the industry.
The case, which dates back 10 years, involves two former IDA registrants
and a third who still is in the industry, who appealed to the commission
the decision of an IDA hearing panel.
At issue is IDA bylaw 20.7, which says: "Any member and any approved
person shall remain subject to the jurisdiction of the association for a
period of five years from the date on which such member or approved
person ceased to be a member."
'A very important case'
"This is a very important case for the IDA," said Jeff Kehoe, the
association's director of enforcement litigation. "Our ability to
effectively regulate depends on our ability to discipline people
allegedly involved in misconduct, even if they are terminated from their
The IDA is one of three associations to which some provincial securities
commissions delegate certain aspects of securities regulation.
The others are the Mutual Fund Dealers Association of Canada and Market
Regulation Services Inc., both of Toronto. Canadian Securities
Administrators, an interprovincial body based in Montreal, acts as the
de facto national securities regulator.
In its appeal motion, the IDA said that the commission erred in law in
finding that the association "has no statutory authority to regulate its
"One point we are trying to get across is that our relationship with our
members is based on a contract," Mr. Kehoe said, "and 20.7 is part of
Alberta is the only jurisdiction in Canada that has granted authority to
the IDA to collect sanctions from former members.
"If this ruling holds up in Saskatchewan, you may see some of the other
jurisdictions contemplating whether they will need similar legislation
[to the legislation in Alberta]," said Bill Rice, chairman of the
Alberta Securities Commission.
And that would open up new problems for the IDA, which has been
criticized for being in a conflict-of-interest position, as it was a
trade association while also being responsible for policing and
punishing its members.
On June 27, the IDA launched the Task Force to Modernize Securities
Legislation in Canada, which
it said will "recommend revisions to Canadian securities legislation and
regulation to achieve a dynamic, fair, efficient and competitive capital
An enforcement arm
And the IDA is breaking itself into two. Capital Markets Regulation of
Canada will be a stand-alone enforcement arm. A new trade association
will retain the Investment Dealers Association name, albeit with a new
logo, and will be headed by IDA senior vice president Ian Russell.
"We're one national trade association, and we speak on behalf of all our
members coast to coast," Mr. Russell said in a statement. "We will not
only marshal industry opinion on regulatory and public-policy issues but
provide leading and qualified opinions on financial issues and capital
The new trade association will be national in scope, with regional
offices across the country. Membership will be voluntary.
CMR has a powerful tool, a database called ComSet, which can be used to
track complaints, monitor industry trends and spot issues.
All 200 members of the IDA must report all client complaints, internal
investigations, disciplinary actions and civil suits within 20 days to
ComSet also tracks reports of money laundering, market manipulation,
insider trading, internal and external disciplinary actions, and
The IDA says that 87.6% of its registered representatives have had zero
"events" reported on ComSet since mandatory reporting began in October
2002. Of 3,929 reported complaints registered with IDA members over the
two years through February, 463 remain outstanding.
Only 15 charged
Still, only 15 individuals on the ComSet database have been charged with
a criminal offense since 2003.
Whether that is enough is a question for the various police agencies and
legislatures who create the securities regulatory regimes.
"Basically, all member firms must report complaints, internal
investigations launched, civil lawsuits and certain criminal charges
within days of them happening," said Mr. Kehoe. "So of the over 23,000
registrants, we receive less than 2,000 complaints/ events each year."