One of the investment industry’s dirty secrets is that the fines and penalties announced by securities regulators are largely fantasy. When regulators slap a big fine on a particularly crooked broker, that may be good for a headline – and for padding the enforcement stats – but the reality is that most of these penalties are never collected. Or collection is impossible because the money is gone or civil suits have drained all assets.

In others, the perpetrator simply leaves the industry and gets on with his or her life. Once the regulators have no jurisdiction over the miscreants, there’s zero incentive for them to pay their fines. In most provinces, there’s little regulators can do.

The Investment Industry Regulatory Organization of Canada (IIROC) is lobbying to change this state of affairs. IIROC recently renewed its long-standing plea to governments for the power to enforce disciplinary decisions through the courts. This should be a no-brainer for government. But, somehow, most provinces have yet to make the needed legislative changes.

If the provinces did, IIROC’s collection rates surely would rise. In IIROC’s most recent fiscal year, at the national level, the regulator collected about 16% on the sanctions imposed on individuals. However, in Quebec, which is one of the two big provinces in which IIROC does have the authority to enforce decisions through the courts (the other is Alberta), it collected 36% of its individual sanctions last year.

Ontario is the big prize. There is about $18 million in uncollected fines against individuals in the province sitting on IIROC’s books, and the collection rate in the province is below average – about 12%. If IIROC could triple that rate to match Quebec’s, this would add several million dollars to IIROC’s restricted fund, which must be used to finance investor protection and education initiatives. Fines do not go into IIROC’s general revenue.

More important, better collection rates would enhance the credibility of the regulatory regime, create a more meaningful deterrent to misconduct and bolster investor confidence. The only losers would be the offenders who are forced to pay for their crimes.

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