Compliance officers step out of the shadows

(January 27, 2005) The recent market timing settlements should serve as a wake-up call for the financial services industry and will make life more challenging for compliance officers, says the head of the IDA.

Speaking at a conference on self-regulation on Thursday morning in Toronto, Joe Oliver conceded that it can often be difficult for compliance officers to voice their concerns, especially if, for example, a new financing technique could lead to handsome profits for the firm and perhaps a select few clients.

“But the bulk of investors will be disadvantaged, your interests will come ahead of your clients and you have been repeatedly warned that the activity is harmful to unitholders or shareholders.”

In those cases, Oliver says his advice to compliance officers would be to pause and consider whether they are doing the right thing — and whether their regulator would agree.

“It would be troubling if some market participants continue to believe no one did anything wrong, because the deterrent effect of the enforcement proceedings would be lost,” he continued. “Those unfortunate cases should be a wake-up call to market participants who may be tempted to ignore their core responsibilities to investor protection and market integrity, whenever an innovative money making technique is available.”

In his speech, Oliver emphasized that the IDA’s recent enforcement actions against three of the big bank-owned brokerages were simply “an assertion of long-standing principles and rules that have been around since we have been participating in the capital markets.”

He added that the concept of a gatekeeper — the idea that registrants and therefore firms have a responsibility to prevent market activity that contravenes the rules — is nothing new, and has come up in market manipulation cases.

Oliver says some in the industry have had an “apocalyptic reaction” to the gatekeeper principle. They worry that it could “herald the end of the retail securities business as we know it.” That’s an over-reaction, he counters.

“The gatekeeper principle has not emerged from a draconian interpretation of old rules. Nor was it created in a ‘gotcha’ culture motivated by careerist imitation of an over-the-top U.S. prosecutor bent on building a political career,” he said, in a not-so-subtle reference to mutual fund crusader Eliot Spitzer.

Still, whether Spitzer is to blame or not, Oliver agreed the Canadian securities industry has been operating in an environment of heightened expectations. This sentiment is echoed by Tom Atkinson, head of RS, Canada’s stock market regulator.

“There’s a perception that the U.S. system is seriously flawed,” Atkinson said during a panel discussion following Oliver’s speech. “The securities industry used to act like an exclusive club. Those days are gone. Conflicts must be managed in the best interests of the investing public.”

Meanwhile, the IDA has a number of other initiatives on its plate in 2005, such as increasing transparency in the often-secretive debt market, according to its senior vice-president, Paul Bourque. That would include a clearer definition of what constitutes improper activity, as well as compliance expectations, Bourque explained.

“Retail investors and firms are not well-informed in terms of pricing in the debt market.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com