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FAIR Canada Newsletter
December 2011 |
OSC Proposes No Contest Settlements and Other Enforcement Initiatives |
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FAIR Canada has provided comments to the OSC on the proposed OSC staff enforcement initiatives. Over the past year the OSC has intensified its enforcement efforts and these efforts have produced much improved results. Major challenges remain, especially with investigation and prosecution of non-complaint emerging market listed companies. FAIR Canada is concerned that the proposed no-contest settlement program will make it more difficult for investors to recover losses and will not further deter corporations and individuals from violating securities laws. FAIR Canada recommends that no-contest settlements be restricted so that cases are only eligible for no-contest settlements either: (a) where there is no harm to investors and, therefore, no need for investors to seek compensation, or (b) where the defendant(s) will provide fair and reasonable compensation to aggrieved investors.
FAIR Canada believes that the OSC should not increase the use of Executive Director-approved Settlements ("Executive Director Settlements") without first publically disclosing data about their use to date. We recommend that the OSC publish a report which provides information on Executive Director Settlements, including the type of Executive Director Settlements, the number of Executive Director Settlements reached each year and whether defendants have subsequently breached securities laws or acted contrary to the public interest. This will allow for greater transparency about this use of this discretion and will allow stakeholders to comment on whether such settlements should be used more sparingly, or whether greater use of such settlements would be in the public interest.
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AMF To Consult on Investor Compensation
The Autorité des marches financiers (AMF) has announced a consultation on compensation of consumers of financial products and services in Québec. The AMF is seeking information on:
- The role of compensation among measures intended to protect consumers of financial products and services;
- Accountability of consumers and representatives;
- Fundamental objective of a compensation system;
- Approach with respect to consumer compensation;
- Responsibility for managing mechanisms intended to compensate victims of financial crime;
- Products, representatives and conduct covered by the compensation fund;
- Funding the compensation fund and cost containment measures.
FAIR Canada commends the AMF and encourages the other members of the Canadian Securities Administrators to undertake consultations with a view to ensuring an appropriate compensation framework for victims of financial fraud in Canada. FAIR Canada has stressed the need for compensation for losses resulting from the insolvency of registrants (see our Financial Scandals Report), including those due to fraud. Many registrants are not currently covered by compensation funds and these registrants tend to pose the highest risk. Addressing this gap in compensation coverage should be a priority for regulators.
FAIR Canada encourages readers to submit comments to the AMF in respect of its initiative.
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FAIR Canada Calls on the OSC to Address Conflicts of Interest When Assessing Maple Proposal
FAIR Canada made a presentation at the OSC's Policy Hearing on the Maple Group Acquisition Corporation Application to acquire TMX Group Inc., Alpha Trading Systems Limited Partnership, Alpha Trading Systems Inc., The Canadian Depository for Securities Limited and, indirectly, CDS Clearing and Depository Services Inc. (the "Maple Policy Hearing").
FAIR Canada focused its submission on how the OSC need to address the conflict of interest that arises from regulating listings while also profiting from the listings business and how the Maple Proposal, if it should proceed, would exacerbate the existing conflict.
The structure that the TSX has to deal with this conflict is the same one that existed at the time it demutualized and is not in accordance with international standards. While the TSX refuses to believe that any real conflict exists, the Ontario Government's Standing Committee on Government Agencies, in a March 2010 Report cited concern "with the perception that the TSX falls below international standards with respect to the separation of its regulatory and commercial activities." The Committee recommended "that the [Ontario Securities] Commission review the potential for conflict of interest between the regulatory and commercial functions of the Toronto Stock Exchange and that it take the steps necessary to address any problems identified."
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High Mutual Fund Fees Under Attack
Jonathan Chevreau of the Financial Post has written some recent articles questioning how sincere the mutual fund industry in Canada is in improving financial literacy, given that Canada's MERs are amongst the highest in the world. While knowledge of fees is improving, many investors are still unaware of the impact of high fees and are wrongly trusting mutual fund salespeople to act in their best interest. See Ok, Investors Group, now the gloves are off on your financial literacy stance and MER debate: Mutual fund industry stands its ground.
Ted Rechtshaffen of the Globe and Mail also weighed in in an article entitled Investors Group mutual fund fees among the highest in Canada.
Rob Carrick of the Globe and Mail points out how investors are being gouged and suggests some low-cost mutual fund alternatives in his article The no-gouge way to better investing.
Preet Banjeree of the Globe and Mail, suggests in his article Fed Up with High Investment Fees? Take Action reasons why investors are slow to move away from high fee mutual funds including the major conflict in mutual fund companies' duty to maximize profits to shareholders at the expense of investors, the lack of investor financial literacy, the low use of index funds by advisors and the fact that investors don't want to "go it alone".
On September 23, FAIR Canada wrote an open letter to Minister Flaherty requesting that he include an examination of the high cost of owning mutual funds for Canadians compared to Americans in the Senate Committee on National Finance's study of price differentials between products in Canada and the United States. Minister Flaherty subsequently asked the Committee to add mutual funds to the list of products to be compared and FAIR Canada has requested to appear before the Committee.
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FAIR Canada is on the Move
Effective December 22, 2011, our new address/contact information will be:
FAIR Canada
1 Yonge Street, Suite 1801 (Toronto Star Building)
Toronto, ON M5E 1W7
416-214-3440 (Main)
FAIR CANADA WISHES OUR READERS A WONDERFUL HOLIDAY SEASON AND HEALTH AND HAPPINESS IN THE NEW YEAR.
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