OSC beefs up enforcement

Compliance may not be a lot of fun, but it beats meeting with a regulator’s enforcement team — or worse, finding your name in the local newspaper.

“Think of compliance as ‘fire preventions,’ which is certainly preferable to calling for help once the building is in flames,” OSC chair David Wilson said at the annual Dialogue With the OSC in Toronto. “It’s less exciting maybe. It gets fewer headlines.”

Wilson admitted that regulators are not particularly well liked, but that they need to be trusted, both by those they regulate and by investors.

“Encouraging compliance is the more effective way to regulate,” said Wilson, pointing to the OSC’s review of the marketing practices of registered portfolio managers. That review found numerous deficiencies, and the OSC is now working with ICPMs to ensure marketing materials are compliant.

The OSC and its counterparts across the country have had their hands full lately. Among their top priorities are getting a handle on the mess in the world’s credit markets and developing better coordination to prosecute securities fraud.

“One of the biggest challenges for securities regulators right now is the crisis in the credit markets around the world,” said Wilson. “Securities regulators must carefully determine the root causes of the crisis and take steps to prevent history from repeating itself.”

To that end, the provincial regulators have been in regular contact with the Bank of Canada, the OSFI and the federal government.

Around the world, securities regulators are reviewing the use of credit ratings in regulated instruments, the conflicts inherent in the rating process for structured products and the transparency of the assets and leverage held in these products.

Global regulators are keenly aware of the dangers of overreacting to the crisis, Wilson said, and are aiming for a consistent global response.

The Securities Fraud Enforcement Working Group has submitted to the federal and provincial governments a focused list of issues that urgently require attention; among them, closer co-operation between regulators and law enforcement.

“The ministers do recognize that securities fraud causes ‘serious harm’ to victims,” Wilson said. As a result, the recommendations have received “broad support,” and governments are currently researching how best to implement them.

Investor protection is more important than ever today, he said, not because the industry is more corrupt but because of the sheer number of Canadian investors. As the responsibility for funding retirement falls ever more on the individual, more Canadians enter the capital markets.

“They’re counting on us — the regulators and the securities industry — to give them confidence that the markets are fair and efficient,” Wilson said. “Market integrity not only contributes to the financial well-being of individuals, it fuels the competitiveness of our businesses and thereby supports the overall economy.”

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