Expect Crumbs


By Miles Clyne

Late last year two major Canadian banks were fined by the Ontario Securities Commission approximately 93 million dollars. In both cases a deal was reached under the Ontario Securities Commission (OSC) no-contest policy. This allowed the regulator and the other parties to reach a settlement without admitting or denying the allegations. 

My skepticism, and no doubt just about everyone else’s with respect to the financial industry is regrettably reinforced with announcements like this. It is hard to believe that any company would pay out millions of dollars unless there was wrong doing.  Google search generates what seems an endless list of these penalties.

In the securities industry in Canada, we have two different types of regulators. The provincial regulators like the Ontario Securities Commission (OSC) and the self-regulatory organization, the Investment Industry Regulatory Organization of Canada or IIROC.

Many have called for the unification of these two organizations. I can’t give you an opinion on if they should, but things do need to change, which I’ll get to in a minute.  The provincial regulators are civil servants.  Whereas IIROC, is a self-regulatory organization, funded by its members.

IIROC has minimal means to pursue the fines they levy.  And Courts in most provinces don’t have the power to enforce sanctions levied by IIROC against the players in the investment industry. The provincial regulators are definitely limited also. This is clear when corporations have to pay back in some cases millions of dollars to clients or investors, but there is no real penalty or punitive action against them, other than refunding the money taken with a modest amount of interest. The big questions to the regulators and the general public, was there a lesson in this for the corporations?

Imagine Joe or Jane Average steals equivalent dollars from a bank. Gets caught, returns the money, then is set free.  This isn’t even remotely likely to happen. Somewhere between main street and Bay Street the rules change for us average folks.  

My guess, the lesson is that it continues to be in the best interests of many financial organizations to keep trying to take advantage of their customers.  If the only penalty is to pay back what was taken plus interest, the regulators may be providing incentive to these firms to pillage, rather than protecting the public. Given the ever-growing list of these institutions getting caught, I’d say they also agree.

If there is to be one regulator, we need it to be unbiased, have the means to apply a penalty that is just, regardless of whether it is a self-regulated, or a provincially or federally mandated organization. But there is some pretty ugly irony in this. For an investor, this is also a pretty sweet deal. Imagine being able to invest in a company where the watchdogs have no teeth.

Regulators should be able to do their jobs, and given the authority to prosecute accordingly. Clients, most employees, and investors are hurt by the actions of a few.  The regulators need to follow the money. Those who stand to profit the most, are likely at the root cause of these corporate issues, and need to be treated like you and I. Their current penance is maybe a smaller bonus in years like this. For everyone else, they get what’s left, crumbs. Bon appetit.