When David Wilson took over as head of the Ontario Securities Commission, his friends on Bay Street told him tougher enforcement should be his top priority. Now, more than two years later, the challenge remains.

The adequacy of enforcement has long been an issue for the Canadian capital markets. The performance of regulators, police and prosecutors all suffer in comparison with their U.S. counterparts. The U.S. authorities seem to bring more cases, have more high-profile successes, win higher penalties and secure more money for harmed investors than do Canadian authorities. While this may not be good for the self-esteem of Canadian enforcers, it’s more important than that. If Canada is perceived as a jurisdiction that’s soft on white-collar crime, it may attract more rogues, deter investors and lead to a higher cost of capital for Canadian firms.

As outgoing Bank of Canada governor David Dodge noted in his final public speech in mid-December, securities enforcement must improve: “Markets work more efficiently when they operate under clear, transparent and reasonable rules and principles, which are enforced and are seen by all as being enforced.”

In Canada, the rules are often not seen as being enforced. Earlier in his career, Dodge infamously characterized the Canadian securities industry as the “Wild West” for its weak enforcement record. More recently, federal Finance Minister Jim Flaherty told the standing Senate committee on banking, trade and commerce: “Relatively speaking, [Canadian securities enforcement] is being assessed as a failure. This is a matter of concern for the image of Canada as being able to enforce and regulate effectively our own securities within the country. Quite frankly, the reports are unanimous that we are not doing well, and some are of the view that this is an international embarrassment for Canada.”

Moreover, as the reputation for weak enforcement is entrenched, it becomes that much harder to repair. Bright legal and investigative minds aren’t likely to be attracted to careers in a sector in which success is tough to achieve.

As former New York state Attorney General Eliot Spitzer showed, aggressive, ambitious lawmen can quickly make a name for themselves by fighting for the little guy in the relatively obscure world of securities enforcement. However, Spitzer succeeded in a very different environment — with exceptional investigative tools at his disposal and in a jurisdiction that rewards such efforts.

It’s hard to imagine the emergence of a similar character in the Canadian context. To start with, while the legal and regulatory systems in Canada and the U.S. are superficially similar, the details are very different. Differences in powers, jurisdiction and legal tradi-tions all inevitably lead to disparate outcomes.

Cultural differences, too, play a part. The U.S. is a much tougher society on law-and-order issues generally; for comparable convictions, penalties in the U.S. are likely to be greater. However, it doesn’t necessarily follow that Canadians don’t want tough enforcement in the form of long jail sentences for white-collar criminals, as the OSC’s enforcement chief Mike Watson claimed at its annual conference in late November.

All of these factors hamstringing Canadian authorities today become a disincentive to those who may have the talent and ambition to try to change the system.

But despite the daunting challenges, there are numerous efforts afoot to try to improve enforcement. On the policing front, the RCMP is trying to get its integrated market enforcement teams on track because, as Flaherty told the Senate committee: “It is hard to imagine how [enforcement could be successful] without our national police force being engaged and being properly resourced to do it.”

The financial resources have been available to the IMETs from the start, but the human resources have proven difficult to acquire. In early December, the RCMP released a report prepared by Nick Le Pan, the newly appointed senior advi-sor to the IMETs charged with improving the units’ effectiveness.

The report admits the IMETs’ results have been disappointing, although it points to mitigating factors such as differences in the legal frameworks in Canada and the U.S. that make comparisons hard.

Still, the report goes on to paint a portrait of units that are essentially victims of bureaucratic bungling and notes that there are numerous organizational problems, including a lack of internal authority, too many vacant jobs, too much personnel turnover and “significant key-person risk.”

@page_break@Le Pan concludes there is no magic bullet but he does deliver a slew of recommendations calling for more leadership and accountability within the RCMP, more effective management (including better human resources) and more co-operation with other players such as prosecutors and the regulators.

Le Pan’s report also calls for lower expectations: “Having success in smaller cases adds to credibility of IMETs and to credibility of capital markets enforcement. It would also help enhance career opportunities and reduce key-person risk in the current program.”

These recommendations generally have been endorsed. RCMP commissioner William Elliott welcomes them, and says the force has already begun to implement them.

Regulators approve, too. “We hope to see a meaningful response to the Le Pan report,” says Doug Hyndman, chairman of the B.C. Securities Commission. “The report confirms all the concerns we had about the RCMP and more. Based on experience, we cannot assume that the federal government will be able to fix this problem, but we can hope.”

Dodge also indicated in his speech his support for the recommendations and for the RCMP’s commitment to improve the IMETs’ performance: “However, much better co-operation and coordination of efforts among securities commissions, law-enforcement agencies, Crown prosecutors and ministers of justice and attorneys general is absolutely crucial.”

Improving co-operation is also at the heart of a series of recommendations to the federal and provincial justice ministers from the so-called “securities enforcement working group.” The group, composed of regulators, police, prosecutors and policy officials, is co-chaired by the OSC’s Wilson and Louis Dionne, director of criminal and penal prosecutions for Quebec’s Department of Justice. It was formed in early 2007 at the behest of the ministers to study ways of improving enforcement in the financial services industry.

That group delivered its report to the justice ministers in mid-November. The report has not been released publicly, but Wilson revealed some of its recommendations at the OSC’s annual conference, noting: “It was clear to the working group that to improve enforcement, we need to improve co-operation, co-ordination and consistency across jurisdictions.”

That includes better sharing of resources among prosecutors, the need for a clearer legal framework for swapping information between regulators and police, and streamlining case assessment.

The OSC took a step of its own designed to improve enforcement performance when it appointed Sasha Angus to a new position that it created to “provide independent advice” to the chairman of the OSC and its executive director on issues involving litigation, enforcement and ethics. Angus joined the OSC in 2006 as special litigation counsel and senior policy advisor to the enforcement branch. IE