Canada needs to overhaul the RCMP team responsible for investigating securities crimes and fundamentally change other enforcement practices to help restore investor trust in the capital markets, the head of the CFA Institute said Thursday.
Margaret Franklin, Toronto-based chair of the global association for investment professionals, said fraud cases like Bre-X Minerals Ltd. and Norbourg Asset Management Inc. have tainted the investment industry and have eroded investor confidence in the system.
"I continue to be shocked that industry participants aren't outraged and demanding stronger enforcement because this is about our business, which is about trust," Ms. Franklin said in a luncheon speech to the Canadian Club in Toronto.
Ms. Franklin said the RCMP's Integrated Market Enforcement Team (IMET), which is responsible for investigating Canada's biggest securities crimes, is one of the weakest links in the chain of enforcement in Canada and should be "revamped from top to bottom."
IMET has cost taxpayers more than $100-million since its founding seven years ago, she said. But as of March 31, 2009, data showed the unit had charged just 26 people with crimes and had recorded only five convictions, Ms. Franklin said.
Ms. Franklin said the CFA Institute will call for a federally commissioned task force to investigate and tackle enforcement issues. The task force should review why so few recommendations from past task forces have been introduced -- notably the 2006 Task Force to Modernize Securities Legislation in Canada, headed by Tom Allen.
She said government and securities professionals should make enforcement a priority, noting there are "billions of dollars on the sidelines in cash accounts" and investors remain wary of returning to the markets.
"Wouldn't you be?" she asked. "Not only did investors experience volatility, but they also learned about fraud, egregious breaches of ethics and a cavalier arrogance where it seemed that capital markets participants forgot just whose money it was."
Individual investors make up a far greater proportion of the markets than even 20 years ago, she added, calling it a "virtually wholesale transfer" of responsibility for money management from sophisticated institutions to ordinary individuals.
"While investing is often seen as elitist and white collar crime is viewed dramatically differently from gun- and gang-related crimes, the integrity of, and confidence in, our financial system ... should be as much of a priority as dealing with violence in our communities," she said.