Ontario Securities Commission chairman David Brown used the start of in an investor-awareness campaign to emphasize the importance of regaining investors’ trust in the mutual fund industry, particularly in the wake of the industry scandals that have erupted in the U.S. in recent months.

“Trust is the essence of any fiduciary relationship, and that trust between the industry and the investor was breached,” Brown told a conference in Toronto hosted by the Investment Funds Institute of Canada to kick off its annual month-long Investor Education Awareness campaign.

While the Canadian mutual fund industry has so far shown to have a clean track record – due in part to strict time-stamping policies that deter late trading and market timing – the industry is still tainted by the continuous trading abuses emerging in the U.S.

Brown says the total amount of fines and fees facing U.S. fund companies so far is approaching US$2 billion, with more than two dozen investment firms currently under investigation.

“All of these activities have a toxic impact on how Canadian investors feel about their own money and their own money managers,” Brown said.

The scandals in the U.S. have prompted the OSC to probe Canada’s mutual fund industry – though Brown emphasizes there have been no violations so far. “Our approach was to get the facts before we react,” Brown said.

The OSC launched its three-pronged investigation in November, beginning with a survey of 105 mutual fund firms in Ontario to confirm that effective policies were in place to deter trading abuses. In February, a second questionnaire seeking additional information was sent out to roughly one-third of those fund companies; the statistical analysis is expected to be completed in the coming weeks, Brown says. The third phase of the investigation will include on-site visits, where appropriate, by the OSC.

“This investigation isn’t a witch hunt, nor is it a fishing trip,” Brown says. “But if there is wrongdoing, this probe will uncover it.”

“We need to ensure that when there’s even the slightest whiff of conflict of interest it must be resolved in favour of the investors’ long-term interest, not in the short-term gain of the fund manager,” Brown says.

Such conflicts of interests are being targeted by the Canadian Securities Administrators, which released a proposal to mandate an independent review committee for mutual funds. “This committee will bring us closer to implementing the mandatory governance scheme designed to manage those potential conflicts of interest,” Brown explained.

Under the proposed rule, National Instrument 81-107, each mutual fund manager is required to establish an independent review committee for all funds, thereby eliminating potential conflicts of interest between investor and manager. “The committee will take us to our one goal: restored trust,” Brown says. The proposal is currently under review.