investor protection / Eoneren

This article appears in the June 2023 issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.

Securities regulators move slowly at the best of times. Even by their standards, though, the dithering over dispute-resolution reform is shocking. Helping harmed investors get their money back should be an urgent priority.

The fledgling Canadian Investment Regulatory Organization (CIRO) just completed its first policy consultation — a laudable, investor-focused initiative that contemplates paying money collected under disgorgement orders issued in enforcement proceedings to victims of industry misconduct.

While the proposal faces logistical challenges, its heart is in the right place. Regulators should use their powers to return money to harmed investors.

However, disgorgement doesn’t equal restitution. Paying back the commissions generated by an unsuitable investment that cost an investor their life savings doesn’t put a dent in the damage — particularly as only a small fraction of disgorgement orders are actually paid.

A more meaningful step needs to come from the provincial regulators that oversee the Ombudsman for Banking Services and Investments (OBSI). The Canadian Securities Administrators have long promised to act on repeated recommendations from independent reviewers calling for OBSI to have binding decision-making power. That measure would ensure that firms can’t shirk OBSI’s investor compensation rulings and would remove the incentive for harmed investors to accept low-ball settlement offers.

For an industry dependent on investor confidence, a robust, cost-effective route to restitution for harmed clients is essential. Investors need to trust that they’re getting advice in their best interests, and that the industry will uphold its end of the bargain when the actions of reps fall short.

At the same time, the industry benefits from an independent arbiter that can distinguish valid grievances from baseless ones. Only about a third of investment complaints that OBSI receives end in monetary compensation recommendations.

Ensuring that OBSI has the authority to do its job is vital. For too long, it’s been widely known that the ombudsman’s work is undermined by regulators’ diffidence. If regulators can’t get satisfaction for harmed investors, the least they can do is empower OBSI to do the job.