The IDA will seek restitution from brokers and firms based on a new established set of criteria, Joe Oliver said on Monday in a speech to the Canadian Club of Toronto.

Also top of mind for the IDA president was the recently announced plan to merge the IDA with market regulator RS. While approved in principle, several of the finer details will be worked out in a joint task force in the months ahead before the deal is completed.

Coming just four months after the IDA spun-off its trade association, which was viewed as a barrier to consolidation, Oliver is proud of the speed this agreement was reached. “This is transformation with a vengeance,” says Oliver. “But it was built on a decade of evolution and years of planning.”

The merger will resolve the conflict of having the TSX Group, a market operator, from owning a 50% stake in the regulator.

While the two organizations pursue a joint mandate, Oliver says they are also working with the CSA to develop rules to give clients more disclosure about the services they receive, the fees they pay and the performance of their investments.

Aside from improving disclosure, Oliver says the IDA is looking at improving restitution while trying to improve on its record on investor complaints. About 80% of the 409 active complaints are less than seven months old, well within the two-year statute of limitation in Ontario on the right to bring civil action. On average, Oliver says, cases are resolved within 3.5 months.

Adding to that, the IDA is going to be asking its panels to provide for restitution to investors who have been wronged. But this is not a panacea, warns Oliver. “I don’t want to raise expectations by the public that this is going to be used in a majority of cases because the circumstances won’t permit it,” he says.

Restitution orders require a higher burden of proof than a civil action. They also carry added risk since these regulator proceedings often extend beyond the limitation of actions, which as Oliver notes, would be the end of the road if the restitution was not granted.

The basic criteria, however, are fairly straightforward:

  • The funds must be available;
  • The loss can be clearly traced to the misconduct;
  • Individuals who were wronged and are entitled to restitution can be easily identified;
  • The amount of money owed can be easily ascertained; and,
  • The fund can be simply and efficiently distributed.

Still, Oliver concedes, “these circumstances will not match many of the cases that come forward.” The best example of this would be the market timing cases that paid back $7.2 million to unitholders. This could apply to individuals as well as to firms, provided all of the criteria were met.

After his speech, Oliver noted that Manitoba introduced legislation about four years ago which gave the commission the right to provide similar restitution, however of the 40 cases examined under the new rules, only one case met all the criteria. “That demonstrates the difficulty in finding the right circumstances,” he says. “We ought to do it where we can.”

Next month, the IDA will take over as chair of the International Council of Securities Associations, which represents SROs and industry associations from the world’s largest capital markets.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(05/16/06)