Advocacy group calls for stricter regulation

A coalition group of seniors and small investors is calling on Canada’s political parties to promise tougher enforcement, including prison sentences against financial advisors found to have defrauded clients.

In an open letter, Concerned Canadian Seniors and Investors (CCSI) says: “The public is being misled by claims that the industry is well-regulated and that investor protection is provided. The current regulatory system has delegated investor protection to the industry that is robbing investors.”

“Widespread and well-documented corruption in the financial services industry is only the tip of the iceberg: the larger problem is inadequate enforcement by governments and regulators of laws already on the books.”

While Canada’s regulatory system is able to fine and suspend the licenses of those found to have abused clients, it is not within the purview of the provincial regulators or the IDA to impose prison sentences, although the IDA wants to make its penalty decisions orders of the court. Of course, investors who have actually been defrauded can always file a complaint with the police.

The Criminal Code of Canada allows for sentences of up to 10 years in prison in the case of fraud, including any case which “affects the public market price of stocks, shares, merchandise or anything that is offered for sale to the public.”

CCSI is calling for the creation of a federally funded and independent “Consumer Council on Financial Affairs” (CCFA), modeled after Britain’s regulatory structure, with the power to investigate alleged improprieties and represent the consumer in dealing with government, regulators and financial institutions.

This body would also include a division to provide mediation services between investors and their financial services providers.

“Experience throughout the free market world has shown decisively that governments and regulatory regimes need to play a far more active role enforcing regulations and redressing genuine grievances in the area of financial services,” the group says. “Governments’ and regulators’ responses so far have been overwhelmingly lip service.”

CCSI is also calling for an independent body to establish new accounting and auditing rules that would align Canada’s generally accepted accounting principles (GAAP) with that of our trading partners. Canadian GAAP has been frequently criticized for allowing the use of data not accepted in other countries.

Pointing to the growing number of income trusts as an example of “unregulated trickery,” the letter describes the structures as “pyramid schemes” and predicts they will only be closed down when U.S. regulators move against them.

CCSI is a fusion of the Small Investor Protection Association and United Senior Citizens of Ontario, along with other smaller groups, and claims to represent more than 300,000 members.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com