Retrieving money should be part of the job

Securities regulators have worked out a plan to return almost $60 million to investors who bought third-party asset-backed commercial paper immediately before that market collapsed in 2007. That’s good news, and regulators should be doing more of it.

Any good financial advisor knows that managing expectations is one of the keys to a happy client. When it comes to regulators, however, there is a huge mismatch between investors’ expectations and the ability of regulators to get investors’ money back in cases in which they have been done dirty by the financial services industry. The average investor often assumes that regulators are there to help them recover their lost funds, then is bitterly disappointed to discover that’s not the case.

That not only leaves investors harmed, it wounds the regulators’ reputations and undermines investor confidence. In 2004, a legislative committee in Ontario recommended that the Ontario Securities Commission and the government work together to come up with a process to make it easier for investors to get restitution. The government promised to follow through on that recommendation, but never did.

Last year, the OSC pledged in its statement of priorities to explore, with the government, a mechanism for getting people their money back. Again, investors have nothing to show for that promise – and it has been dropped from the OSC’s draft statement of priorities for this year.

It’s understandable that regulators don’t want to volunteer for this duty. They are already struggling to keep up with increasing demands on them. And getting people their money back is messy and administratively burdensome.

Efforts have been made. Several years ago, regulators pursued missing funds in the mutual fund market-timing case, and now the non-bank ABCP case is yielding results. Although these efforts are welcome, they tend to be one-offs. It’s up to governments to make it a customary part of the regulators’ job. Investors already expect it. By finally delivering on those expectations, both regulatory credibility and investor confidence could be boosted – results that would be well worth the investment.