B.C. toughens securities enforcement

The B.C. government boasts that the proposed legislative changes – which include an array of other measures – will give the BCSC the strongest enforcement and collection tools of any Canadian regulator.

“Our government is taking action to make sure we have the strongest protections in Canada for people who are investing, and tough penalties for those who are abusing the system,” says Carole James, B.C.’s finance minister, in a release.

The proposals were immediately welcomed by Brenda Leong, chair and CEO of the BCSC, and endorsed by the Canadian Foundation for the Advancement of Investor Rights (a.k.a. FAIR Canada), an investor advocacy group.

“B.C. is setting the bar high when it comes to protecting people’s investments,” says Ermanno Pascutto, executive director of FAIR Canada, in a statement.

Says Leong: “We now have new and better tools to go after the bad actors who break the law and cause significant harm to investors and the capital markets.”

The proposed reforms will beef up the BCSC’s investigative authority by giving the regulator the power to compel witnesses and to require witnesses to preserve records under threat of being held in contempt. The reforms also will give law enforcement agencies power to compel records, to require that computer data be preserved and to keep these orders confidential.

The proposals introduce minimum sentences for repeat offenders (at least one year in prison for repeat violators and for fraud over $1 million). And the reforms will boost the maximum penalties for securities offences to five years in prison and $5 million in fines. In addition, the BCSC will be able to impose monetary penalties for violations of its regulatory orders without the need to hold a hearing.

The proposals aim to bolster the BCSC’s authority to collect those penalties. For example, the changes will expand the regulator’s ability to file orders in court; seize RRSPs; and prevent those who owe monetary penalties to the BCSC from renewing a driver’s licence and getting automotive licence plates.

The proposals also aim to ensure that there’s property available to satisfy sanctions ordered by the BCSC by giving it greater authority to freeze assets. The changes will prevent violators from sheltering assets by transferring property to family members, and the courts will be able to order forfeiture by offenders’ family members and others who receive property from offenders at less than market value.

“These amendments to improve fine collection rates are some of the most far-reaching in Canada and align with international best practices. We are pleased that the B.C. government and the BCSC will make it a priority to return funds to victims of investment fraud,” Pascutto notes.

Enforcement-related reforms aren’t the only goal of B.C.’s proposals – which the B.C. Ministry of Finance states amount to the most significant changes to the province’s securities legislation in B.C.’s history. The amendments will give the BCSC explicit authority to regulate financial benchmarks and to set out its authority to oversee derivatives markets.

That said, enhancing regulatory enforcement is the central goal of the proposed changes, as B.C. makes its priorities combating finan- cial crime in general and money laundering in particular.

While this sweeping legislative reform is confined to B.C., the goal of beefing up enforcement is not. Over the past couple of years, the Investment Industry Regulatory Organization of Canada has been steadily securing legislative changes in several provinces that give it the ability to enforce fines through the courts, enhancing its evidence-gathering powers and confirming its statutory immunity.

Regulators also are changing the sorts of enforcement cases they bring forward. According to a recent report from Toronto-based law firm Cassels Brock & Blackwell LLP (CB&B), recent cases signal that regulators are increasingly willing to target compliance failings, even without alleging that specific violations of securities law occurred as a result.

For example, in August, the Ontario Securities Commission (OSC) settled with two major banks over supervisory failings in their foreign-exchange trading businesses. The OSC did not allege specific violations, and the banks agreed to pay almost $25 million combined.

“The increasing use of the public interest standard in enforcement proceedings raises serious fairness concerns,” states CB&B’s report. This can leave firms without a clear understanding of what amounts to misconduct while exposing companies to regulatory and reputational risk, along with the increased risk of civil action.

Nevertheless, the CB&B report indicates that the law firm anticipates continued enforcement innovation in the years ahead.

“Current trends in securities enforcement in Canada suggest that regulators are prioritizing efficiency in the way they monitor and regulate capital markets,” the CB&B report states, noting that regulators are increasingly interested in deploying technology, such as artificial intelligence and other so-called “regtech” innovations, to improve regulation efficiency and enable greater enforcement activity.

“In the coming years,” the CB&B report adds, “we expect to see increased use of these new technologies, which will facilitate domestic and international co-operation and enhance securities enforcement mechanisms in Canada.”