Canadian anti-fraud measures too fragmented, report finds
Fraudsters can easily prey on Canadian investors because of a flawed system, lobby group says
Canada lacks a formal strategy to adequately protect the public against investment fraud, according to a report released Monday.
The report focuses on scams that directly affect individual retail investors, ranging from foreign exchange and real estate scams, to Ponzi schemes and internet fraud.
The Canadian Foundation for Advancement of Investor Rights, or FAIR, outlined a series of recommendations in the report Monday. Among the recommendations in the 56-page report are that Canadian regulators do a better job of tracking fraud complaints, and publicize the results of those findings. They also call for a national whistleblower program, and ask for existing agencies to collaborate better when working to the same goal.
Although high-profile cases are rare, investor fraud is a genuine problem in Canada, FAIR and others says. In a seperate report Monday, the Ontario Securities Commission says its new fraud enforcement wing, working with the OPP and RCMP, has started 14 investigations between May of 2013 and March 2014. The new agency laid criminal charges in three other cases and has also commenced four "quasi-criminal" proceedings — meaning that the case shares only some of the qualities of a criminal prosecution.
Although Canada has many different agencies focused on protecting investors in theory, the reality is that actually cracking down on investor fraud is inconsistent across Canada. “While we believe that enforcement departments at Canadian securities regulators … are well-intentioned and proficient in their area of expertise, we were not assured that regulators are well-aware of how much fraud is perpetrated across Canada or in particular jurisdictions,” the report states.
FAIR, which receives funding from Industry Canada, says individual investors who report fraud are very few and far between, so that “the number of complaints received would likely only be the tip of the iceberg in measuring the prevalence of investment fraud in Canada.”
When asked why most affected Canadians do not file complaints, Lindsay Speed, Legal Counsel to FAIR explained to the CBC that there are a number of reasons. "Embarrassment is a factor, but also there is no motivation, a belief nothing will happen when they report that fraud." She adds that others "don't know where to go to report it."
And of the complaints filed, most are not publicly available. FAIR says "securities regulators publish varying amounts of information while there do not appear to have been any publications in recent years by police agencies. This is problematic, as investors have been found to have a low awareness of securities regulators, and appear to be more likely to report investment fraud to police agencies.”
When asked to put a number on how big the problem really is, Speed said "I haven't actually seen any evaluation of monetary value of fraud [in Canada]."
That leaves the public vulnerable to fraud. Without comprehensive reporting, "we are concerned that no one has a reliable estimate of the amount of investment fraud perpetrated in Canada,” said Neil Gross, FAIR Canada’s executive director. “Without such information, it is difficult to evaluate how well investors are being protected. Certainly police and regulatory resources cannot be optimally prioritized without good data.”
The number of complaints received would likely only be the tip of the iceberg- FAIR's report on investor fraud
In addition to needing more data overall, FAIR also suggests that Canada requires a centralized data collection point to organize such data in order to help alleviate cases of fraud. “Canada does not have a framework in place to collect, track and report on investment fraud complaints and aggregate that information at a national level,” according to the report.
Although securities regulation falls under provincial and territorial jurisdiction, the 2011 Supreme Court decision on creating a national securities regulator found that "specific aspects of the proposed act were aimed at addressing matters of genuine national importance and scope, including national data collection,” the report states.
The system may be flawed, but that doesn't absolve investors of taking responsibility, FAIR says. The lobby group said the biggest takeaway from the report should be the need for “a coordinated education initiative about fraud, including the need to check registration, background, credentials and other information.”
Many regulators involved
While resources for safer investing do exist, information is fragmented across anti-investment fraud groups. This has led to educational gaps in some areas and a duplication of resources in others. “It is essential that the registration check tool be improved to allow investors to find all relevant information they need to protect themselves through one simple search,” according to FAIR.
In the meantime, Speed recommends Canadians visit www.aretheyregistered.ca to check on their investment adviser. While it is wise to run a check on a firm, Speed stresses the importance of checking on the individual in particular.
FAIR has received funding from Industry Canada’s Contributions Program for Non-profit Consumer and Voluntary Organizations.