Investors Scrutinizing the Regulators

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Securities Regulation In CanadA

Fox Guarding the Hen House




May 2008
ABCP mess highlights flaws
Regulators silent so far on investor protection issues

By Glorianne Stromberg

The fallout from the third-party ABCP disaster has shone a bright light on major investor protection issues centering on mis-selling, due diligence failures, flawed underwritings, and unsuitable products and advice. It has exposed fundamental flaws in our regulatory structure and system. And it has highlighted gaps in the capability of a large portion of the Canadian investing community to make sound investment decisions.

This sorry state of affairs has been greeted with a deafening silence from the regulators that share investor protection mandates and from the financial institutions and related industry participants, that with some justification are waiting to see how this situation plays out.

Although regulators and industry participants are waiting, many investors are not. They have filed complaints with both the Investment Dealers Association of Canada and the Ombudsman for Banking Services and Investments.

Their complaints are focusing new light on the many negative responses from industry trade associations, industry participants and one of the self-regulatory organizations to both organizations’ proposals for complaint and dispute resolution procedures.

These negative responses confirm the clear and immediate need for much-needed improvement.

In light of the negativity, the IDA’s response to OBSI’s request for comments on its proposed revisions to its Terms of Reference (posted at the beginning of March) is a refreshing and sensible approach to working with OBSI to streamline processes for investors who decide to avail themselves of OBSI’s dispute resolution process. The IDA’s comments were focused on constructive suggestions to accomplish this. It would benefit the industry and investors to proceed with constructive suggestions to enhance the OBSI dispute resolution service.

In this respect, despite assertions from some in the industry, OBSI does not see itself as a regulator. OBSI is clearly focused on providing a much-needed dispute resolution service for investors.

To improve its effectiveness, OBSI needs: (i) sensible regulatory and industry rules for complaint handling to be put in place; (ii) investors’ awareness of the OBSI dispute resolution service to be raised; and (iii) the dispute resolution process to be streamlined.

The current investor environment additionally highlights the need to get on with putting in place, without delay, the four components of the “Treating Customers Fairly” initiative that are embodied in the Registration Reform Project, the Point of Sale Disclosure Proposals, the Client Relationship Model, and the OBSI Terms of Reference. There has been enough consultation. It’s time to implement.

It’s time to take a fresh look at the proposed delays contemplated by the industry’s complaint handling procedures — 90 days is far too long. In the UK the time delay is eight weeks. In Australia it is 60 days and in Ireland it is 25 business days. If firms want an internal Ombudsman to review a complaint, they need to streamline their internal processes and conduct some in parallel. Internal, multi-tiered complaint review processes are confusing and distressing to investors and result in needless delay.

The industry needs to make its systems work better for its clients and to provide a better investment environment for clients. Addressing these matters is a starting point and the least that can be done in Canada’s bifurcated regulatory system, which also is something that has long needed to be addressed. IE


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