AMF report shows fintech in regulatory focus

Quebec's financial watchdog highlights efforts against crypto asset risks, illegal platforms, and other offences

AMF report shows fintech in regulatory focus

The Autorité des marchés financiers (AMF) has published its Enforcement Report FY 2018-2019, which reflects its investor protection activities and achievements over the past fiscal year.

“Our report reaffirms the importance of our teams' efforts in enforcing the laws relating to the regulation of Québec's financial sector in order to protect financial consumers at a time when the financial sector is changing in fundamental ways and presenting new challenges," said AMF President and CEO Louis Morisset.

Over the period covering April 1, 2018 to March 31, 2019, the AMF sanctioned a reported total of 151 individuals and firms. The regulator reported fines and administrative penalties totalling $9,191,521, more than two thirds of which came from court rulings in relation to violations of the Securities Act or Derivatives Act.

“This year, illegal distributions were once again the most commonly identified and sanctioned type of offence,” the enforcement report said.

It noted 28 proceedings against 86 individuals and firms, with 198 counts filed under the Securities or Derivatives Act and four counts filed under the Act respecting the distribution of financial products and services.

Nine freeze orders were issued by the Financial Markets Administrative Tribunal against 35 individuals and firms; 19 bans on certain regulated activities, acting as a representative, officer or director or trading in securities were meted out.

In terms of investor restitution, it cited a total of $2,721,248 returned to victims, $341,235 disgorged to the AMF, and 9,427 hours of compensatory work performed by nine offenders.

The report also highlighted targeted campaigns to protect investors in matters related to crypto-asset mining and offerings. In particular, it noted how many start-up fundraising activities conducted through initial coin offerings (ICO) are conducted in violation of the Securities Act, with the proceeds being used “to enrich individuals or firms that quickly divert the money from their victims.”

The AMF identified PlexCoin, Crypto Technologies, and Blockchain Lab as instances where crypto assets and cryptocurrency mining investments were placed under close surveillance, resulting in freeze orders, bans, and cease trade orders.

Also featured were the regulator’s efforts to crack down on illegal online trading platforms. That included HQ Broker and FSM Smart, both which the AMF said involved establishing a relationship of trust with a fake broker. Consumers received reports of virtual gains on their initial investment, prompting them to invest even more money — which didn’t end up in their accounts.

“A number of actions were taken with credit card issuers, major technology firms and advertisers in order to put a stop to the activities of those platforms,” the report said, adding that it conducted a multi-platform campaign to warn investors.

The AMF also noted technological innovations in support of enforcement, including updates to its electronic evidence management project, continued development of an insider-trading detection tool, and a market activity data repository and data analytics system, which was developed in collaboration with other Canadian Securities Administrators (CSA) and is set to roll out in 2020.

"Although the fast pace of fintech development is providing consumers with new options, it is also spawning new ways to engage in unethical, abusive and fraudulent practices that cross borders," said Jean-François Fortin, executive director, AMF Enforcement. "That is why we are focused on developing ever-more effective and efficient technological tools and collaborating with our regulatory partners so we can share our expertise and draw on best practices."

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