Whistle-blower rules proposed for financial industry

FAIR’s report recommends that regulators require all registered market participants to become members of an organization with a compensation fund… It also suggests Canada develop a system to pay rewards to members of the public who tip regulators or police about potential financial frauds.

The Globe and Mail
February 18, 2011

Whistle-blower rules proposed for financial industry
Janet McFarland

Vincent%20Lacroix.jpg

Former chief executive of the Norbourg investment company and convicted fraudster Vincent Lacroix arrives at a half-way house in Montreal Thursday, January 27, 2011 after being released from prison. (Graham Hughes/The Canadian Press)

People working in Canada’s financial industry should be required to report possible fraud by colleagues, and members of the public should be eligible for rewards for tipping regulators about possible financial frauds, a new report recommends.

The Canadian Foundation for Advancement of Investor Rights (FAIR), an independent Toronto-based investor protection group, has reviewed 15 major financial frauds that occurred in Canada over the past decade, and concluded that 78 per cent of them involved firms or individuals who were registered with securities regulators.

FAIR said the finding is “surprising” and suggests that many major frauds involve regulated and supervised organizations. For example, failed investment funds such as Norbourg Asset Management Inc. and Portus Alternative Asset Management Inc. were registered with securities commissions in one or more provinces.

Of the cases examined by FAIR, only 17 per cent of the losses involved firms that were members of a self-regulatory organization such as the Investment Industry Regulatory Organization of Canada or the Mutual Fund Dealers Association of Canada. Both organizations have compensation funds that support victims when firms become insolvent, but few victims of major frauds in Canada end up being covered by the funds.

“The registrants that appear to be the highest risk to retail investors are not members of [a self-regulatory organization] and have no compensation fund,” the report concludes.

FAIR’s report recommends that regulators require all registered market participants to become members of an organization with a compensation fund. It also suggests regulators convene a meeting to ensure that compensation funds “address gaps” in their payout rules so that more victims are covered when member firms collapse.

The report also proposes recommendations to help prevent frauds from occurring, including rules that require all people registered to work in the financial sector to report “potential serious misconduct” by another registered person.

It also suggests Canada develop a system to pay rewards to members of the public who tip regulators or police about potential financial frauds.

FAIR said the incentives would “take a leaf out of the rules for professional conduct of the legal profession” by requiring registrants to disclose possible unprofessional conduct by a colleague.

“Registrants are often best placed to detect potential fraud or other misconduct by another registrant,” the report concludes. “Reporting potential misconduct could lead to the misconduct being identified at an earlier stage and loss or damage to clients being reduced or eliminated.”

http://m.theglobeandmail.com/globe-investor/fraud-report-urges-whistleblower-requirement-tipping-rewards/article1913219/?service=mobile


Brought to you by WikidFranchise.org

Risks: Fraud, Mandatory membership in associations, Whistleblowers, Whistleblowers protected, Canada, 20110218 Whistle blower

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License