The results of Investment Executive’s annual Regulators’ Report Card reveal that, except for a few exceptions, compliance officers and company executives in Canada’s investment industry have a bleak view of the regulators that oversee their businesses.
In turn, survey participants’ scathing assessments of Canada’s regulators inspired me to share the following recommendations for the self-regulatory organizations’ (SROs) enforcement departments and the Ontario Securities Commission’s compliance and registration regulation branch:
1. Lawyers and investigators should not laugh at advisors during an interview.
A regulator’s lawyer and investigator burst out laughing in the middle of an interview, when my advisor client informed them he had not benefited from the infraction of which they were accusing him. The advisor and I were very upset about this reaction, especially because an enforcement matter is never a laughing matter to those in the hot seat — and should not be to the lawyers and investigators either. I have had enforcement staff — even very senior ones — behave unprofessionally by rolling their eyes and smirking, it is sad that they need reminding that they represent the regulators and ought to be professional in all communications with anyone, regardless of the circumstances.
2. Lawyers interviewing should not try to probe when the advisor’s lawyer has objected to a question on the basis of privilege.
During a recent interview, a question was asked and I directed my client not to answer it on the basis of privilege. The regulator’s lawyer looked straight into my client’s eyes after I said this, insisting he answer the question. Luckily, my client listened to me when I told him not to. Regulators’ lawyers must abide by the rules of professional conduct and adhere to well established principles of law, such as solicitor-client privilege.
3. Don’t have non-lawyers review documents for privilege.
I was told in a recent enforcement matter that documents taken from my client’s computer were reviewed by a third party for privilege, then reviewed again internally by the regulator to ensure all privileged documents were removed. However, a document the investigator put to my client was marked in handwriting at the top “discussions with lawyer.” The (non-lawyer) investigator reviewed this document, and when the investigator started to question my client, only then did he pay attention to the writing at the top of the document based on my observation and objection. There were three lawyers assigned to this enforcement matter; this was disappointing and disconcerting. The protocols did not ensure that a lawyer was assigned to the review for privileged documents.
4. Be consistent across Canada.
I participate in regulatory matters across Canada. Although regulators’ staff across the country have been very accommodating to me in cases in which I’m an out-of-jurisdiction counsel, I don’t understand why the Investment Industry Regulatory Organization of Canada’s interviews in British Columbia are still being videotaped when the SRO saw fit to discontinue this practice in Ontario many years ago.
5. Investigating lawyers should not put propositions and rules that don’t exist to advisors.
This happened in an interview in which the investigating lawyer put a series of documents to my advisor client for two hours, asserting he had completed them in violation of a rule, when there was no such rule or violation. Although the regulator’s lawyer must have informed himself afterwards, the advisor was bullied and suffered emotionally due to this experience. Form after form was put to to the advisor alleging violations when there weren’t any. The advisor was registered with no conditions, but the cost (in dollar terms) to have a lawyer attend the interview with him along with the negative emotional experience were unnecessary and improper. This incident occurred in Ontario, but counsel with similar practices in other provinces have told me, unequivocally, that regulators’ lawyers and investigators in their jurisdiction are “bullies.”
6. Do not punish for an isolated error or incident.
People are human and make mistakes. If a regulatory matter is isolated or there is a mishap in which there was no client harm and no intention to breach a rule or guideline, regulators should issue a caution or warning letter instead of penalizing the advisor. Advisors cannot live with a standard of perfection. No one can.
7. Investigators and lawyers should always conduct an interview in a fair and open manner.
Certain regulators permit those being interviewed to review the documents that will be put to them beforehand while others don’t. When I asked lawyers and investigators why they don’t share these documents in advance, they said that an element of surprise will result in a more truthful answer. However, this often leads to answers that are not thought through and may be a guess; and if the advisor guesses wrong, he or she may be accused of lying. The consequences of this are very serious. It would be a more fair and open practice to apply a consistent approach so that documents could be reviewed in advance of an interview.
I am genuinely hopeful that every regulatory lawyer and investigator across Canada takes heed to the recommendations offered in this column. For those in these positions who believe their conduct has gone unnoticed, please think again before behaving in a manner that could be disrespectful or unprofessional. An improvement in your approach may lead to better results in next year’s Regulators’ Report Card.