Compliance is a flexible word. In mountain biking, a “compliant” bike is one that sucks up some of the rough trail and still lets you feel in control. Of course mountain biking you don’t steer as much as guide and bounce to a new location. Compliance is a way to think about being in agreement: as a Synod, we expect all congregations to subscribe to the Lutheran Confessions – they are compliant.
Compliance is doing what you’re supposed to be doing; following all the rules, laws, and regulations of that particular industry.
One of the most heavily regulated sectors in Canada is the financial sector. Canada avoided the economic ditch after the 2008 downturn, largely because Canada’s regulatory system has built-in checks to make sure everything is in the green. There are always loopholes, but generally Canada has managed to avoid falling victim to circumstances seen in the USA and elsewhere.
The Alberta Securities Commission (ASC) looms large in LCC and ABC District’s future. As an arm’s length government agency, the ASC can, among other things, recommend criminal charges, levy fines, and suspend professional licenses.
What can be done, and what should be done are two questions the Alberta Securities Commission wants to get across with a circular it published a couple of weeks ago. It’s what the Alberta Securities Commission wants everyone trading in financial products to know about what they should and shouldn’t do.
The ASC regularly publishes advice and insights on financial dealings in Alberta. This edition is a 39-page paper called “Exempt Market Dealer Sweep.” Exempt Market Dealers are financial professionals who deal in products or market segments that are exempt from certain regulations. In spite of exemptions, problems can still occur. The exemptions are made to make financial dealings easier, not to cut corners and make extra money by pulling the wool over people’s eyes.
The Alberta Securities Commission findings were that, while many companies are good at selling financial products in a professional manner, many aren’t. It would’ve been interesting to see what ABC District’s score would have been a few years ago.
The study emphasizes that agents know their clients, know their products, understand what’s suitable for people, advise them on risk management, and a host of other details. I never invested in CEF because I read the DeBlock report in 1992 and understood a collapse was imminent. But for those who did, here’s a list of do’s and don’ts that anyone trading in financial products should follow:
- Review information with the client
- Date and sign all documents (lots of notes about keeping good documentation)
- Make quality assurance calls / communicate with clients regularly
- Update clients with regular information that may affect their investments
- Adopt policies and procedures that are sensitive to seniors
- Publish quarterly financial updates
- Using templated/canned responses to questions
- Relying too much on forms/templates rather than evaluating individuals needs/resources
- Risk comparison (eg: this is a safer investment than that one) or Marketing based on overly generalized positive claims (ie: “You should invest in CEF. It’s never lost a dime!”).
Incidentally, a fair bit of CEF promotional material in the last 50 years may have been out of compliance with securities laws. The ABC CEF brochures boasted that “CEF has never lost a dime.” Which was true until it wasn’t. While the claim was true (until January 2015), the claim could also be interpreted as being punctuated with an unspoken “and never will.” It’s a subtle difference, but it’s the kind of difference the ASC worries about.
The report addresses conflict of interest issues – but there’s no need to go into that again; we already know that there were several members of the ABC District board (CEF lender), including the chair and a vice-president, who also sat on the EnCharis board (CEF borrower). Benjamin Franklin said, neither a borrower nor a lender be.” ABC district did both. Concurrently. With the same people.
The report is helpful to steer businesses in the right direction so that when they do business, they draw inside the lines. The do’s and don’ts section is revealing because it even suggests that consumers need to be cautious if the vendor only offers only one or two financial products. Not all investors are the same: age, gender, the amount to invest, experience, interests, aversion to risk are all individual factors when considering investments. If a seller only has one thing to sell, even in the church, it may not be a suitable investment for them. The church has always preferred a one-size-fits-all approach. It’s true of our souls, but people are messy creatures with individuals wants, needs, opinions, all the way down to personal deodorant preference. CEF treated experienced investors with money to lose the same as less experienced vendors who put all their eggs in the church’s basket, only to find they dropped it.
The ABC District and CEF are still in the CCAA court process. No one can launch legal action until the “stay of proceedings” is lifted. When it is, I wouldn’t be surprised to see the Alberta Securities Commission throw its hat into the fray. Based on this report, and the litany of dos that weren’t done, and don’ts that were – looks depressingly long.
Andreas Schwabe is editor and publisher of SolaGratia.ca, and an Edmonton-based multimedia & communication strategist and producer. His focus for SolaGratia is on administration, governance, and issues of faith. For clients, he writes or produces just about anything.