“I’m from the government, and I’m here to help…”
By David Gilkes, EMDA Vice Chair and President of North Star Compliance & Regulatory Solutions Inc.
One can only imagine what the introduction Ontario Securities
Commission (OSC) staff will make when they call up clients to
discuss their dealer or adviser. According to the Notice sent out
by the OSC on June 4, 2012 those calls to clients will now be a
standard tool when the OSC conducts a compliance field review
of a dealer or adviser.
As a former regulator and investigator, I can see the value of
obtaining information directly from clients – regulators may obtain
a lot of useful information through interviews with clients:
• regulators can verify the information on the Know Your Client
• question whether the appropriate disclosure of risks and
benefits of an investment product were presented to the
• obtain a view of the dealer from the client perspective to
help assess conflicts of interest and any issue of investor
• investors will know that the OSC is looking out for their
However, there are significant potential problems from
regulators calling clients directly which raise questions the OSC
has yet to answer:
• clients have been known to misrepresent their financial
holdings or income to their dealer - will they admit this to a
regulator, or will they blame any discrepancy on the dealer?
• OSC staff often rely on technical language unfamiliar to
investors or capable of different meanings – will OSC staff
verify that their questions are clearly understood by investors
and that the investor responses make sense?
• hindsight is perfect and market performance is always
viewed in hindsight – will market risk problems be blamed
on the dealer?
• how will the OSC protect the potentially severe reputational
damage caused to dealers, portfolio managers, or investment
products, from calling around to clients and raising alarm
• will the OSC calling clients increase the already heavy
regulatory burden placed on registered dealers?
Addressing the potential for reputational harm to a dealer
from the OSC placing calls to its clients, the OSC attempts to
alleviate concerns by noting:
“…clients who are contacted by OSC staff will be informed
that they are being contacted in the normal course of a
compliance review of the firm, and that the call to them should not
be interpreted as a sign of any misconduct by the firm.”