Investors Scrutinizing the Regulators

Home Page


Securities Regulation In CanadA

Fox Guarding the Hen House



Canadian ABCP Investors Say Regulators, Financial Industry Failed Them


April 10, 2008



OTTAWA -(Dow Jones)- A Canadian Parliamentary committee hearing on the frozen C$33 billion asset-backed commercial paper market was told Thursday that regulators and the financial industry had failed small investors.

The House of Commons Finance Committee is holding a two-hour special hearing to listen to complaints from retail investors and groups representing them.

Larry Elford of Lethbridge, Alta. said that, based on his 20 years experience working in the financial industry, consumer trust is misplaced. He said small investors tend to have faith in investment providers who call themselves professional advisers.

"These people were duped, in my opinion," Elford said in the televised hearing.

He said one prominent firm that sold ABCP had several hundred employees, 99% of whom were registered and licensed as salespeople by provincial securities commissions. All of them represented themselves to clients as financial advisers. He showed the committee documents to back his claim.

Elford said the word "adviser" is a legal registration category with securities commissions and it's illegal to misrepresent it. He said Canadian consumers aren't aware of this.

"Every investment firm in Canada knows this and supports this misrepresentation," Elford said. He alleged that securities commissions also look the other way or grant exemptions to the law.

Elford was critical of self-regulation in the industry. He said self- regulatory agencies and the Investment Dealers Association have rules and regulations against misrepresenting titles and qualifications, but that these bodies also turn a blind eye.

"Self-regulation in financial services is the greatest example I can think of, of allowing foxes to guard the hen house," he said.

Elford said the ABCP crisis is "just the flavor of the month" and "unless we address the underlying issues that allow these abuses, others will occur."

According to another witness, independent consulting analyst Diane Urquhart, ABCP was sold "unlawfully" and in violation of provincial securities laws.

"They stood by blindly while this continued to be sold into the market unlawfully," she told the committee.

Murray Candlish said he and his wife had C$350,000 invested in ABCP when the market was frozen last August.

"If the individual investors are guilty of anything, they're are guilty of trusting the integrity of the Canadian banking industry," Candlish said.

-Nirmala Menon, Dow Jones Newswires; 613-237-0668;

(END) Dow Jones Newswires
Copyright (c) 2008 Dow Jones & Company, Inc.