Investor protection should include fraud and insolvency coverage: FAIR Canada

“We suggest that the system be structured so that fidelity insurance provides compensation for victims of fraud and that [self-regulatory organization] compensation funds cover losses resulting from insolvency,” it says in its comment.

It says all registered firms should be required to be SRO members backed by an insolvency compensation fund. Mandatory SRO membership would reduce the risk of fraud due to closer oversight and supervision, it says, while also providing incentives for SRO members to ensure that all firms follow high standards of conduct to keep their premiums low.

And, it recommends mandatory fidelity insurance coverage for registered firms to cover fraud and dishonest acts by their employees. It also proposes that the AMF consider the possibility of requiring fraud coverage in professional liability insurance.

In particular, FAIR Canada says it supports the recommendation that investment fund managers and portfolio managers be required to participate in a compensation fund. And, it recommends both insolvency and fraud coverage for both investment fund and portfolio managers too.

Finally, it advises regulators to do more to educate consumers about the importance of dealing with registered firms and reps when purchasing financial products. “Public awareness must be heightened,” it says, and it recommends that securities regulators develop a better system to allow investors to check registration information. “It should be simple, easy to use, and provide all the information investors need in order to protect themselves,” it says, noting that the current system “is simply too complicated for the average Canadian to use.”