Canadian regulators will tell you they have been making progress by securing new measures to recover funds for investors who lose money to dubious schemes and malfeasance in the capital markets.
But the reality is that regardless of recent steps, Canada has a long way to go before it emerges as a champion for investor recovery. The country remains plagued by a confusing patchwork of regulators and industry-funded bodies that complicate the task of compensating investors.
In 2014, for example, Canada’s largest securities watchdog, the Ontario Securities Commission ordered $61.7 million in sanctions to be paid as a result of securities law breaches. But just $1.8 million of that, or 2.9 per cent, was collected. Due to regulatory constraints, very little of that cash got back into the pockets of harmed investors.
We all know the reality. It is very difficult for harmed investors to get their money back
Contrast that with the U.S., where the system seems simpler and the tools are more powerful. Since 2002, the U.S. Securities and Exchange Commission has been using a mechanism called Fair Fund distribution to return US$14.5 billion to investors — an average of US$1.3 billion a year. And that’s just one tool the U.S. regulator has at its disposal.
Canadian regulators are well aware of the differences.
“We all know the reality. It is very difficult for harmed investors to get their money back,” says Monica Kowal, who becomes acting chair of the Ontario Securities Commission in two weeks when Howard Wetston’s term ends.
The OSC is trying to catch up. The regulator captured attention this week with details of a program that will pay cash rewards of up to $5 million to whistleblowers who provide the regulator with quality tips about securities violations.
One of the benefits of a whistleblower program is that malfeasance can be exposed early — stopping the harm to investors and leaving money on the table to compensate them.
The whistle-blower program, expected to launch in the spring of 2016, joins a series of recent policies designed to improve the OSC’s poor record of recovering funds for investors who have lost money when securities laws were broken.