Investors Scrutinizing the Regulators

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Fox Guarding the Hen House


Alberta Securities Commission report highlights 'deficiencies' at IDA office

Aug 1, 2007 18:18

By Laura Bobak

TORONTO (CP) _ The Alberta Securities Commission has issued a scathing report detailing "significant deficiencies'' at the prairie regional office of the Investment Dealers Associations of Canada.

The commission's oversight review, issued this week, details a range of issues including; staffing levels, supervision, lack of training, high turnover, a lack of internal communication, a lack of available hearing panels, and a lack of consistency between investigations.

Of particular concern to the commission is a lack of stringency in the review process for considering new members - prospective investment advisers dealing with the public - so that unqualified people may be permitted to become advisers.

"The IDA seems to view registration as an administrative exercise, not as a critical component of regulation that helps to ensure the protection of investors,'' the ASC stated in its report, calling the review of applicants "perfunctory.''

"In some cases the IDA may not be appropriately considering the integrity of all individuals who apply for registration,'' the report states.

"One instance was noted where an individual, who was sanctioned by the IDA for 'conduct unbecoming a registered representative by engaging in personal financial dealings with his clients,' was allowed to open a sub-branch out of his home supervised by a branch manager located two hours away,'' the report stated, adding the person was fined $100,000 for his infraction and placed under supervision for one year.

"The individual continued to conduct illicit activity out of the sub-branch resulting in additional losses to clients,'' stated the report, noting the person was later expelled from the IDA.

A consolidated report by other provincial regulators which have undertaken a review of the IDA is expected soon, as part of a regular review process that takes place every three years, but Alberta has issued its report separately.

The ASC's report also highlighted two forgery cases in which one originally resulted in a reprimand, while another, which involved a designated person forging a signature and misleading the IDA, ended with a warning letter.

"These two cases had similar fact patterns and yet the action take by the IDA was inconsistent from one case to the next. Only one of these cases was brought before a hearing panel and the settlement reached in this case did not fall with the IDA's prescribed guidelines for forgery,'' the ASC stated.

But the IDA said that there are two types of forgery - one that involves fraud and another that is simply a case of a dealer filling in a missed signature for his or her client, with the client's consent - and that the two are dealt with differently.

In the case of the fakes signature, the IDA deems that to be a much less serious infraction.

The report also said the lack of supervision has contributed to some of the problems. The office is supervised by the IDA's vice-president in British Columbia, but the ASC said it has not received enough attention.

Warren Funt, vice-president, western Canada of the IDA, said the association takes the ASC's concerns very seriously.

"It is part of an oversight process which we encourage and accept,'' Funt said. "We take these reviews seriously because it is part of the oversight process and we respect that process,'' Funt said.

"So if they found deficiencies, obviously we work to fix them. We don't take it lightly.''

Funt said past reviews pointed out the good and bad, but this audit seems to focus only on the negative aspects of the IDA's work, and doesn't mention what it's doing right.

"In Alberta's case, it is pretty much just the negative,'' Funt said.

The ASC is the regulatory agency responsible for administering the province's securities laws, but the IDA is expected to monitor and investigate its own members.

"The ASC gives the IDA the authority to help regulate the investment dealers who participate in Alberta's capital market; with that authority comes an accountability,'' said David Linder, the commission's executive director.

"The review helps the ASC ensure the IDA prairie office meets the expectations and standards we set for self-regulatory organizations who help us protect and foster a fair and efficient capital market.''

The ASC also said the IDA's timelines for conducting its investigations aren't fast enough, with one report taking more than the maximum of 26 weeks to complete.

"Given that the benchmarks are generous, this single instance is troubling, especially since the report raised serious compliance issues,'' the report stated.

The IDA, in a written response to the ASC report, said it has taken the following steps to address the ASC's concerns:
  • It has hired a director for the Calgary office this month to increase supervision, and the new director will improve communication within the office, cited as a problem by the ASC
  • The IDA has added three full-time staff and one part-timer to address concerns about staff turnover and slow response times
  • The association will change its quality supervision processes to review a larger number of files