How regulators protect investors

Regulators protect investors by making and enforcing rules for the securities industry in Canada. Learn more about investor protection and securities regulators.

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What organizations protect investors in Canada?

There are two main bodies in Canada that protect investors:

  1. Provincial and territorial securities regulators

Provincial and territorial securities regulators, such as the Ontario Securities Commission (OSC), administer and enforce rules around how securities are issued, bought, and sold. And these regulators set minimum entry standards for market intermediaries who deal with investors. Securities regulators work together through the Canadian Securities Administrators (CSA).

Securities regulators also regulate marketplaces and clearing agencies, approve individuals and firms for registration based on proficiency and educational requirements and discipline firms and individuals.

  1. Canadian Investment Regulatory Organization (CIRO)

The Canadian Investment Regulatory Organization (CIRO) consolidates the operations of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA). CIRO is a self-regulatory organization that oversees all investment dealers, mutual fund dealers, and trading activity on Canada’s debtDebt Money that you have borrowed. You must repay the loan, with interest, by a set date.+ read full definition and equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition marketplaces. Formerly known as the New Self-Regulatory Organization of Canada.

In Quebec, the Montréal Exchange is also considered an SRO. MX is the only financial derivatives exchange in Canada, and currently lists equity optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition, options on ETFs, currency options, indexIndex A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment. Examples: S&P/TSX, S&P/TSX Canadian Bond Index.+ read full definition derivatives, and interest rateInterest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back.+ read full definition derivatives.

What is the role of securities regulators?

Securities regulators in Canada oversee advisers, dealers, investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition fund managers, reporting issuers, and securities markets. The OSCOSC See Ontario Securities Commission.+ read full definition, the securities regulatorSecurities regulator A government agency that enforces the securities act in jurisdiction it has authority over. This act is made up of laws that establish rules for issuing and trading securities. The Ontario Securities Commission is the securities regulator for Ontario.+ read full definition in Ontario, is an independent Crown corporation that:

  • provides protection to investors from unfair, improper, or fraudulent practices and fosters fair and efficient capital marketsCapital markets Where people buy and sell investments.+ read full definition and confidence in capital markets.
  • uses its rulemaking and enforcement powers to help safeguard investors, deter misconduct, and regulate participants in Ontario’s capital markets.
  • regulates firms and individuals who sell securities and provide advice in Ontario, as well as public companies, investment funds and marketplaces, such as the Toronto Stock ExchangeStock exchange A market in which securities are bought and sold.+ read full definition.
  • gets its power from the Securities Act (Ontario) the CommodityCommodity A raw material that trades in large amounts on a stock exchange. For example, grain, gold, and oil.+ read full definition FuturesFutures A derivative contract that commits you to buy or sell a commodity, currency or stock market index at a set price on a set date in the future. Unlike an option, you can’t change your mind later; you must do what your contract says you will do.+ read full definition Act (Ontario) and certain provisions of the Business Corporations Act (Ontario).
  • is funded by fees paid by public companies and intermediaries.

How does regulation protect investors?

There are 5 ways that regulation protects investors:

 1. Meeting the standards

Dealers, advisers, and investment fund managers must demonstrate fitness for registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition at the time they apply for registration, and they must continue to do so throughout the period that they are registered.

For a firm, fitness for registration is assessed in terms of the firm’s ability to carry out its obligations under securities legislation, including the maintenance of:

  • adequate working capital and insurance, books, and records
  • robust compliance systems
  • procedures for dealing with clients, such as at accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition opening and in ongoing reporting.

Fitness for registration is assessed through proficiency, integrity, and solvency criteria. For individual representatives, registration means that they have met the minimum standards for education and experience required for their category of registration.

2. Setting the bar

Together with the Canadian Investment Regulatory Organization (CIRO), securities regulators administer, develop, update and enforce the rules for all firms and individuals that operate in Canada’s markets, including public companies, investment funds, intermediaries, dealers, advisers, and investment fund managers.

3. Checking in

Securities regulators, and CIRO,  regularly monitor firms, public companies and dealers, investment fund managers or advisers to make sure they’re meeting standards and following the rules.

4. Fair markets

Securities regulators and CIRO oversee all securities marketplaces in Canada, including the Toronto Stock Exchange (TSX)Toronto Stock Exchange (TSX) Canada’s largest stock exchange, North America’s third largest stock exchange, and the sixth largest in the world.+ read full definition and TSX Venture Exchange. They watch markets closely and monitor compliance with securities law and rules. Public companies must disclose information on a timely basis and in accordance with securities laws.

5. Taking action

If an individual or firm breaks rules of conduct, regulators take action, such as imposing appropriate sanctions or other disciplinary measures to prevent future harm. This could include placing terms and conditions on an individual or firm’s registration or suspending or revoking registration if the firm or individual becomes unfit for registration.

CLEAN SWEEP

Regular compliance reviews are one way the OSC checks whether firms are following securities regulations. Some reviews are targeted inspections, or sweeps, where the regulator focuses on one particular issue or theme, across a sample of registered firms. Findings from sweeps may be used to help OSC better protect investors through guidance and updating rules.

Read how your investments are protected at financial institutions.

Summary

Regulators protect investors by making and enforcing rules for the securities industry in Canada.

Two main bodies protect investors in Canada:

  • The provincial and territorial securities regulators, such as the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic…+ read full definition (OSC).
  • Canadian Investment Regulatory Organization (CIRO), which consolidates the operations of the Investment Industry Regulatory Organization of Canada (IIROC)Investment Industry Regulatory Organization of Canada (IIROC) National self-regulatory organization which oversees all investment dealers and trading activity on debt and equity marketplaces in Canada.+ read full definition and the Mutual FundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition Dealers Association of Canada (MFDA).

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