At a time when investors and industry participants are calling for proper regulatory enforcement, we get word that the OSC is considering a request that an IIROC investigation be shut down.
The request comes from Deutsche Bank Securities, which is under scrutiny for its role in the distribution of asset backed commercial paper products, which soured in 2007.
The investigation, which was launched in April 2010, alleges that the firm failed to observe high standards of ethics and conduct “by not disclosing the information relating to US subprime and the liquidity risk in third-party asset-backed commercial paper (ABCP) to all of its clients who had invested or were interested in investing in third-party ABCP, while continuing to sell third-party ABCP to its clients.”
So far, the OSC has stayed the investigation until it hands down a decision on whether to tell IIROC to drop it altogether.
Dropping the investigation would be a bad idea. Investor confidence in the regulatory regime is already low, according to Marg Franklin, the chair of the CFA Institute’s board of governors.
What is needed now is not another investigation swept under the carpet, but a proper examination of possible wrong-doing. If Deutsche Bank Securities did nothing wrong, the firm should welcome the chance to clear its name – an innocent man should welcome his day in court.
It’s not clear how terminating an investigation will do anything to restore investor confidence in the regulatory regime, which is vital to maintaining trust in the capital markets.