Regulatory Capture of Regulators: The Case of the Investment Dealers Association of Canada

An update on self-regulation in the Canadian securities industry (2009-2016)

“…More recent findings show that the intensity of enforcement is the most statistically robust and economically significant predictor of market abuse (Cumming et al, 2018a(Cumming et al, , 2018b. The governance of private enforcement, which is largely dominated by a homogenous group of players (such as large investment firms and banks), is partly the reason why the big players in the industry escape proportional sanctions (Lokanan, 2017b;Stenfors, 2018;Williams, 2012). These are all informed traders that predict the profits from corporate misconduct both in the short and long run (Bernile et al, 2015;Cumming et al, 2015).…”

“…A parallel criticism of SROs is that they deflect criminal complaints away from the CJS to protect their members from criminal prosecution (Brockman, 2004, p. 57). Complaints deflected from the CJS are more serious in nature and involve the selling of risky products and illegal bid spreads (Cumming et al, 2018a(Cumming et al, , 2018bStenfors, 2018;Lokanan, 2017b). The introduction of innovative financial products such as Credit Default Swaps and Asset-Back Commercial Papers (ABCP), along with manipulation and bid-ask spreads in foreign exchange swap markets, have complicated the types of products that financial institutions now deal with (Cumming et al, 2018b;Lokanan and Sharma, 2018;Stenfors, 2018;To et al, 2018).…”

“…The financial penalties for these types of market abuses are higher than the more service type offences (Lokanan, 2015a(Lokanan, , 2017a. It may be that for these more serious offences, that enforcement was more vigorous because the minimum pecuniary fines per offence are usually higher (Cumming et al, 2018a;Lokanan, 2017b). In dealing with serious market abuse through private enforcement, SROs enmesh themselves in a conflictof-interest by trying to protect their members and the public at the same time.…”

“…Canada's fragmented system of provincial securities regulators, police, and SROs makes it difficult to share data in a centralized pool to obtain an accurate picture on the enforcement of Canadian securities industry financial market misconduct by regions (Lokanan, 2017b;Williams, 2012). That said, one indicator the Canadian Securities Association (CSA)1 uses to gauge the level of enforcement activities in Canada is to look at the number of offences commenced and prosecuted by regulatory authorities.…”

Anti-money laundering and counter-terrorist financing threats posed by mobile money

“…Technology advancements continue to change the very architecture of financial services by becoming complex value chain networks. As these services continue to diversify, there is an urgent need for more adaptive and fluid regulation (Braithwaite, 2013) to identify, address and mitigate threats as they arise (Lokanan, 2017). As a result, P a g e | 2 anti-money laundering (AML) and counter terrorist financing (CTF) regimes remain operationally fluid, whilst accrediting global financial integrity.…”