Proposals Offer Greater Protection for Investors in Proposed Canadian Securities

The recent recession has done much to add scrutiny to financial regulations. While Canada has fared better than many other countries in the wake of the, too many investors still found out the hard way just how easy it is to become the victim of financial fraud.

For some, an answer to increased investor protection is a new national securities regulator that would have the power and mandate to receive complaints, investigate, and criminally pursue cases of investment fraud. Despite the added impetus gained from the recession, the idea of a national securities regulator dates back a number of years.

Then, as now, CARP held the position that investor protection must be central to any changes made in securities regulation. In our original Public Submission, made to the Expert Panel on Securities Reform, CARP urged that any modifications to the existing regulatory framework not only “improve the stability and competitiveness of our capital markets”, but also “deliver an Investor’s Bill of Rights”. Investors must have the following rights:

1. Fair dealing and transparency that supports informed decision-making and investor confidence;
2. Uniform securities regulation across the country and independent enforcement;
3. A timely, substantive, and accessible redress process;
4. Financial literacy.

These four rights establish the importance of the individual investor no matter where he or she lives in Canada. Most individual investors assume some amount of risk in investing hard-earned money and deserve adequate protection.

Current plans for the recently announced Canadian Securities Regulator (CSR) account for investor protection. Should the CSR become a reality, it promises to bring together all of the provinces and territories under one regulatory umbrella. Federal-provincial jurisdictional wrangling is the biggest barrier to the creation of a single CSR and the Supreme Court of Canada is currently reviewing the proposed legislation for constitutional sticking points.

The transition plan for a CSR was released on July 13, 2010, and should the constitutional issues be resolved, the CSR could launch as early as the summer of 2012. The proposed CSR legislation includes both regulatory and criminal enforcement capacities. In addition to provincial regulations, the CSR will have the power and mandate to “investigate and impose regulatory sanctions”, powers that should be improved through the “consolidation of enforcement resources, expertise and better coordination”.

Cases of securities misconduct may also face greater criminal enforcement. Offences such as securities fraud, market manipulation, insider trading, and misrepresentation would become criminal in all jurisdiction across Canada. What’s more, the CSR would have the capacity to complement the role of the RCMP and other police forces by providing specialized investigative support.

If the CSR becomes a reality, investors may benefit from uniform regulations across the country and stronger regulatory and criminal enforcement. The biggest challenge, however, will be coordinating these powers across jurisdictions. As with many things Canadian, the federal government and provinces will have to learn to cooperate. For now CARP’s call for greater protection for individual investors appears to be addressed in the proposed legislative scheme. It remains to be seen whether the proposals will provide adequate access  for individual “retail” investors.