The Ontario Securities Commission and the other regulators that participated in last year’s Investor Town Hall meeting in Toronto recently issued a report highlighting the progress they have made since the event. However, the report shows that little, if any, progress has been made to alleviate the concerns investors raised back then. Instead, the regulators seem more intent on trying to improve public perception than improving investor protection.

On May 31, 2005, a panel of five — including the OSC and the self-regulators (the Investment Dealers Association of Canada and the Mutual Fund Dealers Association), as well as the Ombudsman for Banking Services Investments and the Small Investor Protection Association — faced a capacity crowd of 500 in the CBC building’s atrium. There was a palpable mood of frustration and anger. The message to the regulators was clear: there is a huge problem, and the public wants action.

The draft report of the Investor Town Hall event was released shortly thereafter and indicated four main concerns of investors: the limitation period, the complaints process, timely restitution and regulator/investor dialogue.

The newly released regulators’ progress report says they are providing improved communication; better access to information (they are considering a central database of registered representatives); more clarity on existing investor redress (to ensure investors are aware of it and how to access it); greater clarity about the limitations period; and more consultation with investors (the establishment of the investor advisory committee (IAC), as well as planning future Investor Town Hall events).

What real progress has been made on these concerns since the Investors Town Hall meeting? Here is a closer look:

> Limitations Period: The limitations period remains at two years. Proposed minor changes do not address the issues raised by investors at the Town Hall event.

> Complaints Process: The complaints process is still dependent on industry or industry-sponsored organizations and no progress has been made toward establishing one point of contact to have a complaint addressed.

> Restitution: The same industry-sponsored agencies are still in place. IDA arbitration or OBSI are no substitutes for justice. And access to civil litigation has been restricted because of reducing limitations periods to two years from six.

> Regulator/Investor Dialogue: The OSC has created the IAC, which first met in January. SIPA has a standing offer to publish IAC reports on its Web site, but the IAC’s terms of reference or any of its reports are not yet available. And even though the OSC has said it would arrange future Investor Town Hall events, apparently the time is not yet right more than a year later.

This lack of progress shows that governments and regulators are failing to take action to provide real investor protection. Regulators claim this protection is important, but their strategy is preventative in nature. This approach has failed to protect investors against losses resulting from wrongdoing. There must be an authority that represents investors’ interests with the power to take appropriate action.

It is no longer good enough for regulators to say that victims of industry wrongdoing can take civil action to try to recover their losses. Regulators must realize that the industry vigorously defends situations that appear indefensible and uses delaying tactics that create additional costs for plaintiffs.

Now Ontario, as well as some other provinces, has reduced the limitations period to two years from six. Don’t the regulators realize that someone who has been robbed of life savings needs time to recover to be able to deal with the issue? Don’t they realize the current industry complaint processes often fritter away several years in trying to delay complainants and discourage them from proceeding?

The regulators have written a glowing report on the progress since last year’s Investor Town Hall, but SIPA fails to see it. The fundamental issue is that small investors are losing their savings because of widespread industry wrongdoing and there is no agency with authority that represents these investors’ interests. Victims are left to deal with the industry or take civil action to obtain justice. Sadly, that right to civil action is being eroded.

The extent of this tragedy has been covered up for far too long. It is not enough to talk about improved regulations, recommended best practices and new guidelines. Mandatory rules are being breached with impunity. Enforcement is lacking.

@page_break@The regulatory regime should be principles-based, provide remedial investor protection and punish those who contravene the rules and regulations.

The public is gradually becoming more informed through the media. There are more class actions in Canada working their way through the courts. The judiciary is becoming better informed and is now including punitive damages in its judgments.

Now is the time for the regulators and the industry to make significant changes. It’s time for government to recognize that this issue will not disappear and that it will have to pay the costs of Canadian citizens who are marginalized when they lose their savings because of industry wrongdoing. IE



Stan Buell is president of the Small Investor Protection Association.