Compliance is the easiest option: OSC chair

Regulators must take a more aggressive, proactive approach to dealing with criminal activity in the securities industry, according to the chair of the OSC. And he’s asking Bay Street for help.

Speaking at the Canadian Institute’s Securities Superconference in Toronto, OSC chair David Wilson called on the industry to be vigilant in its compliance with regulations, as even minor violations can shake investor confidence.

“Compliance is key to the effectiveness of securities regulation. When there is non-compliance, swift enforcement must follow,” Wilson said. “You can have the best regulations in the world, but if you don’t enforce them effectively, they don’t mean a damn thing.”

Voluntary compliance is crucial, he said, because the alternative would require market-stifling strictness on the part of the regulator. Given the option, proper compliance seems to be a small price to pay.

“The idea that regulation should seek to eliminate all failures may be appealing in theory,” he said, quoting the enforcement director of Britain’s Financial Services Authority. “In practice, it imposes prohibitive costs on the industry and consumers.”

Market confidence has never been more important than it is today, as individual investors increasingly rely on their own investments. Between 1992 and 2003, for example, the proportion of Canadian workers with a defined benefit pension plan fell from 44% to 34%.

“The OSC is considering setting up a focused scam unit to fight boiler rooms, turning the advantages of modern technology against the fraudsters,” Wilson said. “Such a scam unit would deploy staff with market, regulatory and law-enforcement expertise to collaborate with law-enforcement agencies such as the RCMP.”

Recognizing the importance of maintaining investor confidence, regulators have stepped up their efforts to prevent economic crime, rather than simply prosecuting it after the fact.

Between April 1 and September 30, 2006, the various provincial regulators, along with the IDA, MFDA and RS, commenced 57 enforcement investigations — an increase of 16% from the comparable period in 2005.

The number of sanctions handed down jumped from 17 to 37, with 90 cases resulting in settlements, decisions or sanction orders.

Wilson also commented on the CSA’s proposed NI 31-103 Registration Requirements rule, which was unveiled earlier this week, pointing out that the streamlined requirements would lower compliance costs for firms operating in multiple jurisdictions and improve regulatory efficiency.

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