Apparently, securities regulators have recovered sufficiently from their first experience in meeting a large room full of disgruntled investors that they are ready to do it all over again.

On Oct. 24, the Ontario Securities Commission, the Investment Dealers Association of Canada, the Mutual Fund Dealers Association of Canada and the Ombudsman for Banking Services and Investments are hosting a second town hall meeting in Toronto.

The OSC held its first inves-tor town hall in May 2005, with the participation of the industry’s self-regulatory organizations (the IDA and MFDA), the ombudsman and the Small Investor Protection Association. This time around, rather than the OSC dragging the other organizations along, the OSC, IDA, MFDA and OBSI are hosting the meeting jointly. SIPA will not be participating.

And in an effort by the regulators to demonstrate that they are taking retail investor issues seriously, the heads of the organizations — OSC chairman David Wilson, IDA president and CEO Susan Wolburgh Jenah, MFDA president and CEO Larry Waite and industry ombudsman David Agnew — will once again host the meeting.

The format will be somewhat different this time around. Following a plenary session reviewing the regulators’ work since the last town hall, attendees will move into three simultaneous breakout sessions that will focus on complaint handling and restitution, client/advisor relationships and avoiding common scams.

To demonstrate further the regulators’ commitment to these issues, they are reaching out to a high-profile critic of many retail investor initiatives — former OSC commissioner Glorianne Stromberg (now chairwoman of Ontario’s Public Accountants Council) — to moderate the breakout session dealing with the client/advisor relationship. She will be joined by veteran advisor Jim Rogers, chairman of Vancouver-based Rogers Group Financial Advisors Ltd. , in a session that will look at choosing an advisor and examine the client/advisor relationship. The session will also include a demonstration of how investors can find information about firms and advisors on the regulators’ Web sites.

The complaint/restitution session will be moderated by Rosanna Di Lieto, associate general counsel for the OSC. During the session, Rob Paddick, OBSI’s senior deputy ombudsman, will address the OBSI process. Others will look at the complaint process: Alex Popovic, vice president enforcement at the IDA; Shaun Devlin, vice president enforcement at the MFDA; and Joanna Fallone, manager of case assessment in the OSC’s enforcement division.

The moderator for the session on scams has yet to be determined. Scheduled speakers are Steve Kelman, president of Toronto investment counsel firm Steven G. Kelman & Associates Ltd. , and Scott Boyle, assistant manager of investigations at the OSC and the head of its new anti-scam unit.

Wendy Dey, director of communications at the OSC, says the breakout sessions are intended to focus on some of the top issues investors brought forward at the previous town hall. The smaller groups should also make it easier for regulators and investors to interact.

Each of the breakout sessions will include a question and answer session and, following the sessions, there will be an hour-long Q&A with the heads of the sponsoring organizations. As well, all sessions are being recorded. A couple of them will be posted as audio Webcasts on the OSC Web site (www.osc.gov.on.ca), allowing investors access to the contents of all the breakout sessions.

The OSC views the town hall forum as a way of improving the relationship between retail inves-tors and the regulators, says Dey: “There’s a realization that inves-tors want a different relationship with the regulators and the ombudsman — a more direct one. And we’re view-ing [the forum] as something we want to do, will do and should do.”

It’s been more than two years since the last event. The reason, Dey says, is that the regulators needed time to follow up on some of what they learned at the first meeting, and to refine the format. That begs the question: how much progress do the regulators have to report?

After the first town hall, the regulators and OBSI created a joint committee to address some of the issues that came out of the event — and the one that has seen some headway is the handling of client complaints. Last year, the IDA issued a notice outlining its expectations for its members when it comes to dealing with complaints and clarifying its standards. The IDA is also actively working on a policy that would introduce complaint-handling timelines.

@page_break@Wolburgh Jenah says this effort wouldn’t have happened without the first town hall. “Had we not had that forum, that initiative would not be ongoing — it was the direct result of what we heard and the thought process that followed,” she says. While investors often focus on enforcement issues — or the lack of enforcement — she notes, the policies regulators adopt are often just as important to the way retail investors are treated by the system.

While improved complaint handling is certainly a welcome development, the reality is that the dearest wish of the average inves-tor who feels wronged by the industry is the opportunity to get his or her money back. Affordable access to restitution is probably the most pressing complaint that investors have — and it’s been that way for several years now.

After Ontario’s standing committee on finance and economic affairs held hearings into proposed changes to the securities regulatory system in 2004, it concluded that small investors “need practical remedies when they have suffered a loss as a result of a violation of Ontario’s securities laws.” As a result, it recommended that the OSC work with the government to establish a mechanism to allow investors to pursue timely and affordable restitution.

At the first town hall, a couple of possible paths to restitution were suggested — such as having the OSC use its disgorgement power to return money to investors, or revising securities legislation to make it easier for the OSC to seek a restitution order in court. It has similarly been suggested that the SROs could start ordering restitution in their own hearings.

But, so far, the use of these powers is rarely in evidence. Nor does there appear to be any work being done on a new mechanism to provide better access to restitution.

Indeed, even the ombudservice — which is one cost-effective way for investors to recoup improper losses — suffered a setback earlier this year when it announced that, for the first time, a firm had declined to follow its ruling. OBSI’s rulings are non-binding; the only real power it has is to publish the name of a firm that declines a recommendation for investor compensation.

Even before that development, however, investors seemed as skeptical of the role of OBSI as they are of the performance of regulators generally. One speaker at the first town hall summed up many investors’ feelings when he said: “I think we desperately need some agency with the clout and power to provide a needed remedy for the small investor in case of dealer wrongdoing. Ombudsmans don’t cut it, and most people can’t afford a lawyer and going to court.”

The best the regulators have been able to do so far is to help investors navigate the existing system more easily. There has been no fundamental reform to the system so that the balance of power tilts more in investors’ favour. A new publication that aims to help investors find their way will be available at the upcoming investor forum.

“We have been working to ensure that investors are aware of the avenues available for making a complaint and getting their money back,” says Dey, adding that the regulators and OBSI are taking “a more consistent, harmonized approach to help investors better understand and access available mechanisms, including the OBSI process and IDA arbitration.”

Additionally, the OSC says, it is still exploring other ways to help investors get their money back — namely, the same measures it mentioned at the first town hall, such as applying for court-ordered compensation. “We have recently brought two cases under this section [of the Securities Act],” Dey says, “and are now getting a better sense of how it may be applied by the courts.”

By comparison, a recent report by the U.S. Government Accountability Office on the Securities and Exchange Commission found that approximately US$8.4 billion in investor restitution has been ordered since 2002, either through federal court orders or through SEC administrative proceedings. This doesn’t count the billions recovered in investor lawsuits, which are also prevalent in the more litigious U.S.

Of course, the U.S. system isn’t perfect. American lawmakers are trying to devise ways to cut back on the amount of shareholder litigation that takes place, for fear that it is hampering the competitiveness of U.S. markets. And the GAO report criticized the SEC because only US$1.8 billion of the funds ordered returned had been distributed to harmed investors as of June of this year, according to SEC data. Administering these funds efficiently is obviously a concern.

Canadian regulators should be commended for agreeing to meet with investors once again in an open public forum. But talk is cheap. What investors need is action — particularly on the issue of restitution. IE