Each year the Canadian Securities Administrators (“CSA”), an umbrella organization of Canada’s provincial and territorial securities regulators, release an enforcement report which provides key details of enforcement efforts in Canada’s securities regulatory system. The CSA recently released its 2015 Enforcement Report, which highlights the enforcement statistics for securities regulators across Canada, including data about the total fines and penalties imposed and the total number of proceedings commenced.
Some of the key points included in the 2015 Enforcement Report were as follows:
- Approximately $138.3 million was ordered in fines and administrative penalties. This number was up significantly from $58.2 million in 2014 and $35.4 million in 2013.
- Approximately $111.6 million was ordered in restitution, compensation, and disgorgement. This number was up from $65.7 million in 2014 and $54.9 million in 2013.
- 108 proceedings were commenced. The CSA classify a proceeding as “commenced” where a CSA member staff has filed a statement of allegations, sworn an Information before the courts, or served a statement of offence in Québec. In 2014, 105 proceedings were commenced. In 2013, 112 proceedings were commenced.
- The 108 proceedings commenced in 2015 involved 266 respondents: 165 individuals and 101 companies. By comparison, the 105 proceedings commenced in 2014 involved 281 respondents: 189 individuals and 92 companies. In 2013, the 112 proceedings commenced involved 270 respondents: 160 individuals and 110 companies.
The 2015 Enforcement Report also highlights cases that were concluded in 2015 which deal with fraud, illegal distributions, misconduct by registrants, illegal insider trading, disclosure violations, market manipulation, securities law prosecutions, and Criminal Code prosecutions. A complete list of all CSA-concluded cases can be found here.
As the 2015 Enforcement Report indicates, the total fines, administrative penalties and compensation orders in 2015 were approximately $250 million. This number is more than double the total fines, administrative penalties and compensation ordered in 2014, which amounted to approximately $124 million. In an interview with the Globe and Mail, CSA chairman Louis Morisset stated that this jump in the quantum of enforcement orders reflects the regulators’ desire to send a strong signal of deterrence. In Ms. Morisset’s words, “the severity of sanctions is important to ensure people who have in mind to not respect the rules will understand there’s a high price to pay for that.”
In evaluating the effectiveness of securities regulators’ enforcement efforts, it is important to note that even while the quantum of fines and restitutionary penalties imposed has nearly doubled since last year, the total number of proceedings commenced has remained effectively the same over the last several years. That is, rather than prosecuting more offences or employing a wider variety of enforcement mechanisms, the regulators are driving an increase in monetary penalties by levying larger fines and penalties on a per-case basis.
Given the public protection jurisdiction of the provincial securities regulators, in our view, the activity levels and overall effectiveness of these bodies is best measured by more meaningful qualitative factors such as the number of cases and types of matters pursued, the time it takes from the identification of alleged wrongdoing to its resolution, and the length of administrative hearings from commencement to full conclusion. The total amount of fines and penalties imposed is, in our view, of limited usefulness in evaluating the effectiveness of the regime. While big dollar figures make headlines, they do little to protect the capital markets if hundreds or thousands of other securities law contraventions go undetected or unaddressed. Enforcement staff ought to have a mandate and the tools available to investigate, commence and prosecute a larger number of cases as efficiently and timely as possible. Participants in the capital markets are best protected when enforcement staff proceed with a view to minimizing and mitigating harm done to investors through cease-trade orders and other registrant suspensions and bans available under securities legislation, rather than seeking to impose ever-escalating fines.