Great announcement, however we have had similar announcements in the past that have done little to help the individual investor.
Finance Minister Charles Sousa said new legislation will be introduced to provide industry regulators the ability to better enforce disciplinary actions and fines through the courts.
“This measure will improve the self-regulatory organizations’ ability to collect the fines levied against individuals and help deter potential offenders from wrong-doing in the first place,” Sousa was reported saying.
This was welcome news by the Investment Industry Regulatory Organization of Canada (IIROC).
“Regulation doesn’t work unless it has teeth,” said Andrew Kriegler, President and CEO of IIROC.
Sounds great, or does it?
According to Kriegler, the backlog of unpaid fines in Ontario since 2008, for offenses ranging from misappropriating clients’ funds, falsely endorsing clients’ signatures, and making unsuitable recommendations, is a staggering $20 million.
Please allow me to play the role of devil’s advocate.
If our provincial government has IIROC, an existing regulatory body, that has such a large amount in uncollected fines, should the collection process be assigned to another body?
In the business world, it is success that is rewarded and reinforced, not failure—$20 million in uncollected fines seems like a failure.
Several groups applauded the government’s announcement and proclaimed how their organizations could play a pivotal role.
In my opinion, some of those same organizations have failed in the past. Despite that, they want to continue playing a role in policing the financial services industry.
Some would argue that the bodies that purport to be protecting individual investors are more of a union, protecting those employed in the financial services industry.
However, all is not lost by last week’s announcement.
The Ontario government’s recent Expert Committee to Consider Financial Advisory and Financial Planning Policy Alternatives includes a statutory duty for advisors to act in the best interest of their clients.
Even though Sousa didn’t commit to it, in my opinion a statutory best interest duty would be the most significant advancement in protecting individual investors the industry has seen in decades.
In order to be effective, it should allow individual investors the right to sue wrongful advisors and the firms that employ and supervise them.
Whether it be specific legal action on behalf of one client or a class action suit, that kind of policing option would have teeth.
In simple words, if harm was done to an investor, those committing the harm would be subject to legal action.
The bottom line is that some individual clients need protection from misconduct, and if that protection is not adequately provided by the existing framework, there is more work to be done.