CSA Chair on "significant year" for investor protection

Stan Magidson has a lot to be proud of. The Chair of the Canadian Securities Administrators (CSA) — as well as Chair and CEO of the Alberta Securities Commission (ASC) — is reflecting on the past twelve months following the recent publication of the CSA’s Year in Review. His takeaways centre on one key area of focus: what the CSA has done for investors. That includes their initiative to provide the Ombudsman for Banking Services and Investments (OBSI) with binding authority to mediate investor complaints. It includes the CSA’s ongoing work with CIRO to implement the client focused reforms. It also includes a record year for enforcement.

In the past 12 months, The CSA published 1054 investor alerts — many directly tied to online scams and almost half directly related to crypto. 64 individuals and 39 companies were banned from participation in capital markets. Total financial sanctions amounted to $27.6 million, the highest in four years. Total restitution paid amounted to $75.7 million, the highest in five years. The total jail time imposed amounted to 16.5 years, the highest in four years.

“I think this reflects a proactive versus reactive approach at the CSA,” Magidson says. “When we see some trouble brewing, we want to be out there ahead of it, instead of having to try and unscramble a broken egg. I think we did that with urgency and frequency in this past year.”

One of the key tools behind this enforcement and communications uptick, Magidson explains, has been the investor alert tool. That tool serves as an early intervention tactic, warning the public about potentially harmful or illegal activity. It’s a tool built for the age of online mass communication, where scams can proliferate rapidly before traditional enforcement measures can step in.

While the CSA has clearly seen the need to be rapid in its communications, Magidson says that they remain committed to a thorough review. He emphasizes that they need tangible indications of either an ongoing or a brewing fraud to issue an alert. He is cognizant of the risk of ‘crying wolf’ and overusing the alerts to the point where their impact is lessened. The Year In Review includes an ‘anatomy of a disruption’ section which talks through exactly what the process for these reviews involves.

The process also involves going out into the worlds where online scams proliferate: social media platforms.

“We’ve concluded that we can’t just sit in an ivory tower at the CSA, we have to go to where these investors are,” Magidson says. “So we’re on social media and we’re putting out investor education into the channels where investors are going to be able to identify them. We go on reddit and other sites where we see a lot of folks are actually getting their investment advice.”

Magidson highlighted that of the investor alerts published in the past year, almost half were connected to crypto-related scams. He sees crypto as a challenging area, one fraught with risk for investors. He notes, however, that there is a significant appetite for investors to access these assets. He says it’s not the regulator’s role to proclaim what is or isn’t an acceptable product, it’s about ensuring appropriate disclosure and guardrails. When assessing crypto-related claims he says the CSA looks for features like asset backing, custodianship, and the nature of the wallet. Their approach, he says, has to be iterative and agile in this space, but it’s also focused on investor education.

Looking ahead, Magidson says that the CSA will continue to actively monitor social media, act on tips, and issue alerts. They will also look closely at implementing tech solution, which could include the use of AI to help manage the sheer volume of information now flowing on online communication channels. Magidson says there is no use of AI currently, but that the prospect is being explored.

While the work undertaken by the CSA is more geared towards investors than advisors, Magidson emphasizes the crucial role advisors can play in this process. The work they’re doing to combat scams and ensure a better educated investor can have benefits for advisors as well. Even investors with financial advisors can be victims of these scams, and better educated clients are typically better protected.

Magidson also wants advisors to participate in the enforcement process. If they see investors being defrauded, he hopes they will use one of the various reporting avenues at the CSA to ensure that those investors are protected.

“We want to make sure that investors don’t view our capital markets as a casino that they are policed properly,” Magidson says. “I think this is a complement to what advisors are doing in the more unregulated space. We hope that advisors will see that we’re serious about market integrity and if they see scams, they let us know about them so we can assist.”