Investors Scrutinizing the Regulators

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Securities Regulation In CanadA


Fox Guarding the Hen House

   
APRIL 2006

IDA Pact Questioned


BY MARK BROWN

 

The Investment Dealers Association has launched an appeal of a Saskatchewan hearing panel decision that threatens to unravel the regulator's power to discipline its former members. Although the case has attracted little public attention, it could force Canada's securities commissions to act if the IDA loses.

 

In February, a Saskatchewan Financial Services Commission hearing panel determined that the IDA's contract with its members does not give it the right to bring disciplinary action against brokers after they have left the industry.

 

The case, which dates back more than 10, involves two former IDA registrants and a third who is still in the industry, who appealed an IDA hearing panel decision to the SFSC.The IDA accuses Wade MacBain, Karl Neufeld and Frederick Smith of Matrix Financial in Saskatoon of violating several IDA by-laws between 1996 and 2000. The hearing panel allowed the appeal of MacBain and Neufeld, but permitted the IDA to go ahead with its disciplinary proceedings against Smith.

 

Jeff Kehoe, the IDA's director of enforcement litigation, says this is the first case of its kind (although there are others that have questioned the scope of the IDA's powers in passing). "Our ability to effectively regulate depends on our ability to discipline people allegedly involved in misconduct, even if they are terminated from their member firm," Kehoe says.

 

In its appeal motion, the self regulatory organization says the commission erred in law in finding that the association "has no statutory authority to regulate its former members." Whether the IDA has the statutory authority is irrelevant, says Kehoe. "Our position is we don't need it," he argues. "One of the terms of that contract is to be bound by that contract even after you leave."

 

This case is being closely watched by other regulators. Bill Rice, chair of the Alberta Securities Commission, says the provinces may need to consider legislative changes if the SFSC ruling holds up.