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Streetwise Regulators increase pressure on provinces, territories to crack down on financial adviser fraud

Investment regulators are putting more pressure on provinces and territories to pass laws that crack down on financial adviser fraud.

The Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association (MFDA), which oversee registered investment dealers, mutual-fund firms and financial advisers, are seeking greater legal powers from provincial and territorial governments to collect fines and investigate crimes against investors. Their aim is to provide a consistent level of investor protection across Canada by closing gaps in some jurisdictions that allow perpetrators to evade punishment.

Uncollected fines have become a major sore point for regulators who’ve encountered difficulties in collecting the millions of dollars in outstanding monies owed. Only a handful of provinces have passed legislation that allows regulators to identify possible offenders and immediately start collecting evidence on these alleged wrongdoers. At present, most jurisdictions require regulators to wait until disciplinary hearings begin before they’re able to gather evidence – delays that hinder enforcement.

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“This is why it is so important for us to continue our work with governments across Canada, to get a consistent level of investor protection from coast to coast,” said Andrew Kriegler, IIROC’s president and chief executive.

Late last year, Prince Edward Island became the fourth province – joining Nova Scotia, Quebec and Alberta – in passing legislation that grants regulators greater investigative power. In addition to collecting fines and evidence, the changes provide regulators with protection from malicious lawsuits when acting in the public interest.

Powers by province

Investment regulators are seeking greater authority to crack down on financial adviser fraud. Here is what they are currently permitted to do, by province and territory.

Province/territory Legal authority to collect fines Legal authority to collect evidence Protection against malicious lawsuits
Alberta X X X
Nova Scotia X X X
PEI X X X
Quebec X X X
Manitoba X X
British Columbia X
Northwest Territories X
Nunavut X
Ontario X
Saskatchewan X
Yukon X

 Source: IIROC and MFDA

Note: Absent provinces are those where IIROC and MFDA do not have the authorities listed above. 

IIROC oversees about 160 investment dealers and their trading activity in Canada’s debt and equity markets, while the MFDA supervises 91 mutual-fund firms that employ more than 80,000 advisers. They investigate crimes against investors including misappropriation of funds, forging documents or executing unauthorized trades or recommending unsuitable investments.

Since 2008, IIROC has issued $44.1-million in penalties against individuals, and has collected $8.8-million – a national collection rate of 20 per cent.

"Where we have stronger legal authority, we have higher collection rates,” Mr. Kriegler said. As of September, 2018, IIROC’s collection rate in Alberta is 26 per cent, in Quebec it is 39 per cent.

Since 2004, the MFDA has levied $91-million in fines against advisers, and has collected $12.3-million of those fines, for a collection rate of 13.5 per cent. MFDA’s president and CEO Mark Gordon said expanded powers will help recoup unpaid fines from advisers who’ve left the business.

Several jurisdictions passed legislation in 2018 to provide partial authority to regulators. British Columbia, Manitoba, Northwest Territories, Nunavut and Yukon passed amendments to collect fines. In Saskatchewan, Bill 159, which allows IIROC and the MFDA to collect fines directly through the courts, is expected to pass this year.

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Mr. Kriegler says his goal for 2019 is to work with governments in the remaining provinces, including New Brunswick and Newfoundland and Labrador, which have yet to pass legislation. Additionally, IIROC will push other jurisdictions to expand investor protection beyond the collection of fines.

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