For the advisor or broker being investigated by regulators, there are certain statutory provisions in place to ensure their misconduct, or alleged misconduct, will be dealt with in a reasonable or predictable period of time.These limitation periods are under scrutiny now and in the coming months, as the Supreme Court of Canada reviews arguments put forth recently in the case McLean v. British Columbia Securities Commission (BCSC).
In a statement announcing it has been granted intervenor status, allowing it to present arguments of its own, Advocis – The Financial Advisors Association of Canada, says these limitation periods “give certainty to potential defendants so they do not face an unending threat of litigation.”
As well, Advocis president Greg Pollock says the premiums advisors will need to pay for their Errors & Omissions (E&O) insurance will increase as well if the BCSC makes its case, and the need to pay them could extend long into retirement, even for those who’ve successfully transitioned their business to another advisor.
In this particular case, Patricia McLean entered into a settlement agreement with the Ontario Securities Commission in September 2008, over events she agreed had occurred in 2000 and 2001. In addition to other conditions, she was banned from trading for five years, and agreed to pay investigation costs.
Then in January 2010, the BCSC executive director obtained an order against McLean, based on the information contained in the Ontario Agreement. It says the six-year limitation “clock” or period was restarted when McLean and the OSC entered into the 2008 settlement agreement. In McLean’s argument, lawyers write that “secondary proceeding provisions (do) allow regulators to rely on a conviction, finding, order, or agreement as evidence of a person’s conduct, (but) they must still use independent judgement to decide what, if any, order is required in their jurisdiction’s public interest.”
The crux of McLean’s argument, appears to point to sections of the Securities Act that say proceedings must not be commenced more than six years after events that give rise to proceedings.
“McLean argues that any enforcement action must be based on the actual misconduct, and not on the details disclosed in the OSC settlement,” says Advocis in its announcement. “If the BCSC’s interpretation is upheld, an advisor could be under a nearly life-long threat for a single act of misconduct.”
The lower Court of Appeal agreed that specific events need to occur before the Commission can make an order, but said the event “that gave rise to proceedings” was the Ontario agreement, and not McLean’s original conduct.
That said, it allowed her to appeal the case further, because the BCSC order “essentially replicated” Ontario’s order, with no independent explanation about why the subsequent order and sanctions were in the public’s interest.
“If this case is determined in our favour, it’s going to force cooperation between securities regulators that we just don’t see today,” says Mr. Pollock. “I think they are capable of moving in that direction, and I think this would force them to do so. There’s a growing amount of coordination, but there hasn’t been enough when it comes to this kind of order.”