Saturday 30 April 2016

Canadian Securities Administrators Ignore Rule #1 about Rules

What's rule #1? A rule is not a rule unless it's enforced. Any two year old knows that if the parents say to do or not do something, unless there is a sanction that is actually applied, you can behave as you want. And that's what kids do. The rule doesn't actually exist in any practical sense.

The CSA is exactly in that situation as the "parent", supposedly regulating financial firms and their employees dealing with the public, getting them to behave honestly and responsibly towards the public. The Small Investor Protection Association recently released a shocking and dispiriting report Unpaid Fines: a National Disgrace, which details the almost non-existent collection of fines imposed on financial miscreants in recent years. As the report says, this abysmal performance undermines the whole system of regulation. Investors will lose confidence. The financial industry will not feel deterred against misdeeds.

Such utter neglect of the CSA's mandate is especially annoying in the light of its recent excellent proposal to institute a best interest standard (as opposed to the weak suitability standard now in force) for financial advice on the investment industry. That proposal, even if implemented, won't have much real beneficial effect unless enforcement takes place. It's high time for the CSA to start doing its job properly. Just ask any parent.

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