In its recent submission to the AMF, FAIR Canada stated that better compensation in cases of fraud or insolvency of regulated firms is needed. At present, many registrant firms are not members of a self-regulatory organization ("SRO") backed by a compensation fund which provides coverage in the event of the firm's insolvency. 

In addition, coverage under the Québec's Financial Services Compensation Fund (the "Fund") will not be provided if the product sold was outside the registrant's authority (a consumer will generally not know the scope of that authority). Recent cases, such as Norshield Asset Management (Canada) Limited, Portus Alternative Asset Management Inc. and Norbourg Asset Management Inc. offer clear examples of why these gaps in compensation coverage need to be addressed immediately. 

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Retail Investors Need Greater Protection in Exempt Market

FAIR Canada submitted comments to the CSA in response to a request for comments regarding the minimum amount (MA) and accredited investor (AI) exemptions that allow the sale of investments to retail investors without a prospectus. FAIR Canada pointed out a number of concerns regarding these exemptions, including:  

• The lack of information available regarding the exempt market in Canada. Regulators should provide data to show where losses are suffered by consumers due to fraud or other misconduct in order to focus regulation on high-risk areas. 
• The limited protections afforded to investors by current "suitability" obligations. 
• A lack of compliance by market participants with "suitability" requirements and qualifications for the AI exemption.
• The need for effective oversight of exempt market firms in order for investors to be adequately protected. 
• The absence of any compensation fund coverage (such as CIPF or IPC) for clients of Exempt Market Dealers.
• A lack of disclosure of large commissions made on the sale of exempt products and conflicts of interest that are rife in this market.
• Flawed presumptions underlying the current MA and AI exemptions. The fact that a consumer may have a certain income or level of financial assets does not mean that the person is financially sophisticated and not in need of protections provided by securities law.

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