The National Bank of Canada presented several recommendations intended to maintain the balance between investor protection and development of the industry at a press briefing on Tuesday, a few days before Quebec’s Public Finance Committee began holding public hearings on the mutual funds sector.

Senior vice president — personal banking and wealth management Michel Tremblay indicated from the outset that the mutual fund industry generally has a very good track record. He added that increasing the number of regulations would result in higher costs for the majority of investors and would therefore be counter-productive. He stated that it would be better to harmonize Quebec’s legislative and regulatory initiatives with those of the other Canadian securities regulators.

In addition, Charles Guay, senior vice president — mutual funds, stated that expanding the role of the external auditors of mutual funds would provide added protection for investors. He proposed establishing a minimum level of relevant experience for auditors and requiring mutual funds to rotate audit firms after a certain number of years. Currently, mutual funds retain the same auditors unless specifically authorized to change firms by the securityholders.

The National Bank also recommended that the Autorité des marchés financiers supplement their current staff with personnel who have a greater knowledge of products, financial markets, operations and distribution. The bank further proposed that the AMF be given the power to return misappropriated funds and fraudulently or unlawfully acquired gains to investors without going before the civil courts. Guay added that higher minimum fines and longer jail terms are needed as a deterrent.

Guay also pointed out that information for investors is still overly legalistic, voluminous and unclear. He stressed that greater efforts should be made to simplify disclosure and present information in layman’s terms so that investors have a clearer understanding of the investment products they purchase.

To ensure the viability of the industry, “the regulatory environment should not be unduly increased. The existing framework is adequate; its potential simply needs to be maximized,” added Guay. In a brief presented to the Public Finance Commission, National Bank opposes separating roles on the basis that it would increase costs and would not necessarily be beneficial for investors. The bank is, however, in favour of mandatory registration for mutual fund managers, as long as it does not add to the burden of the majority who are already registered in other areas of the financial products sector.