New numbers suggest advisors may be more inclined to challenge allegations of wrongdoing. At the same time the CSA appears to be doing a better job penalizing the industry’s bad apples.
The Canadian Securities Administrators’ 2014 Enforcement Report is pointing to 56 percent of cases having been concluded through a contested hearing. That’s much larger than the 31 percent who settled or the 13 percent that went to court. That breakdown contrasts to 2013 where 41 percent of cases were concluded through a contested hearing and 39 percent opting for settlement.
It’s also worth noting the year-over-year changes in penalties exacted by the CSA.
A total of $58.2 million in penalties were doled out in 2014, a 64 percent jump from a year earlier. As the CSA notes in its report, “Total penalties can vary considerably year to year, depending on the nature of the cases.” One shouldn’t reach any conclusion by the substantial uptick in monetary sanctions. It’s a timing issue more than anything.
The new report from the CSA suggests the industry had a better year when it comes to running afoul of industry regulations. But there’s always room for improvement.
In 2014, the CSA commenced a total of 105 proceedings – proceedings being defined as cases where CSA staff have filed a statement of allegations or sworn an Information before the courts – involving 189 individuals and 92 companies. In comparison there were 112 proceedings commenced in 2013 involving 160 individuals and 110 companies.
The good news: Less companies were being investigated for wrongdoings in 2014.
The bad news: More individuals were in the spotlight (not in a good way) this past year.
For a really bad year one only has to go back to 2012 when 242 individuals and 146 companies were involved in new proceedings.
A case is concluded when a final decision, either a dismissal or sanction, has been issued. In this area things seem to be slowing down with a total of 105 cases put to bed compared to 133 in 2013 and 135 in 2012.
As a result of the lower number of cases closed, the number of individuals and corporations receiving some type of sanction in 2014 dropped by 33 percent compared to 2013. This likely isn’t a problem given fewer proceedings are commencing.
Types of Offences.
In terms of both proceedings commenced and concluded cases, the majority of offences come in two varieties: Illegal distributions (selling securities without a license) and fraud. In 2014, 75 percent of proceedings commenced involved one of these infractions with 68 percent for closed cases.
In 2013, illegal distributions and fraud accounted for 74 percent of the commenced proceedings and 78 percent of closed cases, an indication that 2013 was a busy year for these types of infractions – and a positive reflection on the year that just was.
Bill Rice, the chair of the CSA, opens the 2014 report stating the following:
“Deterring securities violations, protecting investors and fostering fair and efficient capital markets in Canada via the enforcement of provincial and territorial securities laws are core responsibilities of the regulators that make up the Canadian Securities Administrators (CSA).”
Advisors would likely concur.