Brown: Fund issues not systemic

(April 5, 2004) The Canadian mutual fund industry is struggling with some of the same problems as their U.S. counterparts, but the issues do not seem to be systemic, according to OSC chairman David Brown.

Brown’s remarks were part of a breakfast meeting at the Toronto Board of Trade on Monday to kick off IFIC’s annual Investor Education Month.

“Fund companies have been very forthright with us,” said Brown. “We’re finding there are issues they’ve been wrestling with themselves.”

Phase one of the OSC study asked105 fund companies “very specific” questions about their practices and internal controls. Phase two winnowed the number down to 35, including some companies that were randomly selected, for further scrutiny.

Brown is not saying how many fund companies will be engaged in phase three of the study, but he says the onsite inspections will begin in the next few days.

Without offering much in the way of detail, Brown says these issues are “of the same character as those in the States,” such as frequent trading which may indicate market timing.

“We are not finding the systemic issues that there are in the U.S.,” says Brown. “We’re also doing our own econometric analysis, similar to the one that was done in the States which preceded the probe.”

So far, it appears the Canadian fund industry has been co-operating to Brown’s satisfaction, which he says should help to reassure investors.

“We’ve been very pleased with the response,” he says. “I think the mutual fund industry here understands how important this inquiry is and how important it is to try to reassure investors that if there are issues in Canada, they’re being addressed and addressed quickly.”

But while the companies themselves are co-operating with the investigation, there have been no whistleblowers coming forward.

“We started our probe because of issues in the United States mutual fund industry,” says Brown. “As you know that started with a tip to Eliot Spitzer, but we have not received such a tip at this point. No one is coming forward and saying that there are serious issues, so we’re doing our own investigation.”

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