Canada's mutual fund regulator has created a whistleblower program to encourage employees working in the sector to report wrongdoing.
The Mutual Fund Dealers Association, which regulates 115 mutual fund companies and 81,000 registered employees in Canada, said it has set up a phone line and e-mail address to receive tips about evidence of potential wrongdoing inside firms.
The MFDA wants the new program to make employees aware that they can make complaints confidentially to senior staff, said Shaun Devlin, MFDA senior vice-president of enforcement.
"We've always taken anonymous complaints, but we just want people to understand that if it's the kind of complaint that can't be made anonymously, but they want to bring it to our attention, we have these protections in place," he said.
A traditional complaint normally comes from a customer complaining about their account at a firm, while the whistleblower program is more aimed at industry insiders who have concerns about a firm, he said. Tips to the MFDA's whistleblower program will be reviewed automatically by senior staff, while normal complaints begin with a lower-level review process.
"It's very important to have this process openly known to individuals," Mr. Devlin said.
There is no cash reward for tips, which is a key feature of the high-profile whistleblower program offered in the United States by the Securities and Exchange Commission. The U.S. program, which was set up three years ago, offers rewards equal to between 10 per cent and 30 per cent of penalties collected in enforcement cases if the tips lead to an enforcement actions with penalties over $1-million.
The Ontario Securities Commission has been studying the idea of a whistleblower program since 2010, but has hesitated over the costs associated with paying for tips. At an OSC conference in October, enforcement director Tom Atkinson said the commission was still studying the concept and he expected to have a report completed by March with recommendations on whether to move forward with the idea based on the costs and feasibility of a program.
The MFDA program is almost identical to the whistleblower system created in 2009 by Canada's investment firm watchdog, the Investment Industry Regulatory Organization of Canada, which is a self-regulatory organization for the brokerage sector. IIROC's program also funnels tips directly to senior staff and offers confidentiality to people who call, and does not pay cash for tips.
Mr. Devlin said the MFDA is not offering money for tips because Canadian regulators do not have a tradition of paying for information, and because it is still unclear whether the SEC's program will be successful in generating many useful tips.
"I think it's a little early to see how that process would work," he said. "It's an interesting initiative in the U.S., and we would want to take a little more time to see how that works. It wouldn't be out of the question in the future."
He said the MFDA will keep the identity of complainants as confidential as possible, but it cannot promise complete confidentiality because it could be ordered by a court to reveal the information if the case ends up in a legal dispute.
Janet McFarland