SROs seek enforcement power

Lowering fees, reducing size and becoming more relevant and responsive to consumers were the main themes of the Current Issues in SRO Compliance conference in Toronto on Thursday, but it was a harsh rebuke by a large lobby and consumer advocacy group that left delegates fidgeting in their seats.

The meeting was meant to be an opportunity for the SROs to review their progress in 2005 and talk about what they hope to accomplish in 2006. Much of the change, as Joe Oliver, president and CEO of the Investment Dealers Association of Canada (IDA) noted in his opening address, is the result of the influx of retail investors that have transformed the capital markets over the past two decades.

But are the SRO’s doing enough to protect the consumer?

Not by a long shot, according to Ken Kivenko from CARP, the Canada’s Association for the Fifty Plus, an outspoken lobby group, who scolded the SROs during a question and answer period following the opening remarks. “[It] was absolutely the worst year for investors,” he said. “There couldn’t have been a worse year.”

Using the opportunity to air his grievances Kivenko pointed out a few of the issues that he called a stain on the industry last year: the lack of regulation over structured products with underlying hedge funds; “toxic” accounting within some income trusts; and the infamous Portus and FMF scandals.

“Please don’t get complacent. I know you are all trying but you really have to speed up the pace of change,” Kivenko pleaded. “We don’t see people going to jail; we see wrist-slap penalties; we see more toxic products out there. Please engage investors, consumer groups and advocates, get them on your boards or form separate panels. We are disengaged from you.”

Interestingly, Kivenko was the first to bring up the issue of PPNs or any of the other products that are flooding the industry, which is something the new OSC chairman, David Wilson, has indicated he wants to clamp down on.

In terms of enforcement and imposing stiffer penalties, the hands of SRO’s like the IDA are tied. “In Ontario and in most other provinces, we cannot collect fines from people who have left the industry,” Oliver says. “That inability has often been cited to discredit the fines as a meaningless gesture.”

He added the IDA will intensify its efforts in 2006 to make decisions of disciplinary panels treated on par with decisions of the court, as well as the ability to compel non-industry witnesses to attend and produce documents at a hearing. Within the past two weeks the Canadian Securities Administrators and the IDA met to discuss this issue, but there is no word if any progress was made.

On a related front, Market Regulation Services (RS) will continue to work towards shifting more responsibility to the individual, making them responsible to pay their own fines. Tom Atkinson, president and CEO of RS likes to use a hockey analogy to explain his point. When a player is suspended for his conduct on the ice, his team is not allowed to pay the fine because the league wants to change that individual’s behaviour, he says. RS would hope the same would work in the capital markets.