Who are all those people and what do they do?
I’m often asked why the financial services industry in Canada isn’t better regulated. After all, we frequently read about some unfortunate investors who were bilked of their life savings by an unscrupulous “advisor” who turned out to be a confidence trickster running a ponzi scheme. Inevitably, the call goes out for more regulation. But the fact is, financial services in Canada are already subject to multiple layers of regulators and regulation. Here’s a quick rundown on which of the many agencies does what, and who you can complain to if things go wrong.
Investment Industry Regulatory Organization of Canada (IIROC). This is a national self-regulatory organization that oversees all investment dealers and trading activity in Canadian debt and equity markets. It sets and enforces industry standards with the aim of protecting investors and strengthening market integrity. To that end, it screens all investment advisors employed by IIROC-regulated firms to ensure proper training, education, and good character. It also sets minimum capital requirements for member firms and conducts compliance reviews for both business and trading conduct.
IIROC also conducts market surveillance and investigates possible dealer or marketplace misconduct, bringing disciplinary proceedings where necessary, which may result in fines, suspensions, bans, or terminations for individuals and firms.
IIROC also offers investor protection through the Canadian Investor Protection Fund (CIPF) should a member firm become insolvent or bankrupt. The CIPF is funded by IIROC-regulated firms, and participation is mandatory. Virtually every investment dealer in Canada is a member, including the investment subsidiaries of all the big banks and insurance companies. The CIPF is subject to limits and restrictions. More information can be found at the IIROC website.
Mutual Fund Dealers Association of Canada (MFDA). This is the national self-regulatory organization for mutual fund dealers (firms that sell mutual funds to investors) that are licensed with provincial securities commissions. Its aim is to regulate the operations, standards of practice, and business conduct of its members. It currently has 111 members, with $359.3 billion of mutual fund assets under administration. The MFDA sets out detailed requirements for members, including particulars respecting business structures, capital requirements, insurance, books and records, client reporting, and business conduct. The MFDA also assesses complaints made against member firms and/or their salespersons (“advisors”), conducts investigations, and imposes disciplinary penalties.
The MFDA Investor Protection Corporation (IPC), covers losses arising only from the insolvency of a MFDA member up to $1 million for eligible customers. As with IIROC’s CIPF, there are plenty of limits and restrictions on coverage. Check the MFDA website for more details.
Provincial securities commissions. Regulatory agencies, such as the Ontario Securities Commission, the British Columbia Securities Commission, the Alberta Securities Commission, and the Autorité des marches financiers in Québec, all have pretty much the same legal mandate – in the words of the OSC, “To provide protection to investors from unfair, improper or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets.” Provinces without specific securities commissions typically have a department or agency that oversees financials and securities regulation in the province.
Securities commissions are supposed to operate independently of the government, and have rule-making and enforcement powers with the aim of preventing misconduct and maintaining the integrity of the markets. They monitor compliance of market participants, conduct audits and investigations, and may take enforcement actions, including sanctions, penalties, and bans of firms and individuals. The commissions also have the power to prosecute firms and individuals through the courts. Commissions are funded by fees charged to market participants (“registrants”).
Canadian Securities Administrators (CSA). The CSA is an influential organization consisting of securities regulators from every province and territory in Canada. Its mission is to develop a national system of harmonized securities regulation, policy, and practice, and is thus the platform from which a national securities regulator may eventually be formed. According to the CSA, investigation and enforcement are its core responsibilities. It identifies violations of securities laws or conduct in the capital markets that is contrary to the public interest, and can impose appropriate sanctions. Its aim is to deter wrongdoing, protect investors, and foster fair and efficient capital markets. The CSA provides investor education on financial and investment topics.
The CSA also runs the System for Electronic Document Analysis and Retrieval (SEDAR), which is a repository for just about every financial statement, record sheet, fact sheet, announcement, prospectus, and offering memorandum for every public company, mutual fund, and security issue in Canada. To get financial information and documents as filed by the issuer (instead of second- or third-hand through the media or other channel), this is the place to go.
Other regulators and agencies
These are the biggies that regulate and oversee capital markets and financial services in Canada. Many other regulatory agencies also oversee parts of the Canadian financial sector, including financial services commissions (e.g., the Financial Services Commission of Ontario, which oversees the insurance sector, pension plans, loan and trust companies, credit unions, mortgage brokers), the federal Office of the Superintendent of Financial Institutions, which regulates federally registered banks and insurers, trust and loan companies, and federally regulated private pension plans. And let’s not forget the granddaddy of all financial regulators, the Canada Revenue Agency, which has a finger in every pie.
I haven’t touched on the various professional bodies that issue designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Chartered Professional Accountant (CPA), and numerous other bodies, each of which educates, regulates, and tests its members.
Together with many other overlapping government departments, these agencies and organizations employ tens of thousands of people to administer the thousands of pages of rules and regulations that govern the financial services industry in Canada. So why do so many crooks, con men, and fraud artists still manage to get away with millions? It’s because no matter how hard they try, governments will never be able to legislate away the twin forces that make financial malfeasance possible: greed and ignorance. And that’s why it’s prudent always to consult with an independent financial advisor if you’re offered a “special” investment that seems just a little too good to be true.
© 2014 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.