From the Regulators

Investment industry firms urged to do more to prepare for and respond to the needs of vulnerable investors

By James Langton |

 

Investment firms and advisors should be recruited into the fight against the exploitation of vulnerable investors, particularly seniors, recommends a new report from the Canadian Foundation for the Advancement of Investor Rights (FAIR Canada) and the Canadian Centre for Elder Law (CCEL).

The joint report examines issues involving vulnerable investors, and the growing risk of elder abuse. It makes a series of recommendations for reforms that would enable investment industry firms and employees to help combat suspected incidents of financial abuse.

"While most older Canadians live independently and are capable of making their own financial decisions, elder financial abuse, undue influence and mental capacity challenges are serious and growing social concerns," the report says. "This report seeks to raise awareness of these concerns, and provide recommendations for how the investment industry can take positive steps to address these issues. This report includes recommendations on training, standardized conduct protocols, reporting, privacy, liability protection, and awareness raising."

In particular, the report recommends:
> firms be authorized to place a temporary hold on transactions in cases of suspected abuse;
> a safe legal harbour be created to enable firms to report possible abuse without facing legal repercussions; and
firms develop internal processes for identifying and protecting vulnerable clients.

In addition, the report calls on firms:
> to provide mandatory training on issues of abuse;
> to obtain information of a trusted contact for each client; and
> to educate themselves on external resources and agencies that can deal with these sorts of issues.

"We call on securities regulators, and the investment industry to really engage on these issues. Older Canadians, advocates and the investment industry have told us they all support having a conduct protocol in place which balances investors right to make their own choices, with the reality that investment firms are in a unique position to prevent or stop financial exploitation of vulnerable investors or respond to help those who show signs of diminished mental capacity," says Marian Passmore, COO and director of policy, FAIR Canada, and a co-author of the report, in a statement.

"These recommendations are designed to help the investment industry play a critical role in abuse prevention," adds Laura Tamblyn Watts, senior fellow and staff lawyer at the CCEL, and co-author of the report. "Right now, they are ‘damned if they do, and damned if they don't' report suspected financial abuse. Financial service providers are worried that if they report their concerns they will face liability or regulatory sanctions for breach of privacy or for not following client instructions. If they do not report, they fear getting sued for that, too."

The Investment Funds Institute of Canada (IFIC) welcomes the report's recommendations.

"We are encouraged to see that the report's recommendations reflect the input of IFIC and its members on several fronts, particularly the need for a regulatory safe harbour, authorization to place temporary holds on trades and disbursements, clear regulatory guidance, and the importance of advisor education," says Paul Bourque, president and CEO, IFIC, in a statement.

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