Risk Management and Crisis Response Blog

CSA releases annual enforcement report – focus on collaboration and enforcement in digital world

Jun 27, 2019 3 MIN READ
Lawrence E. Ritchie

Partner, Disputes, Toronto

Lia Bruschetta

Partner, Disputes, Toronto

The Canadian Securities Administrators (CSA) released its annual enforcement report yesterday – aptly titled “Evolving Securities Enforcement for a Digital World”. Not surprisingly, a major emphasis of the report is on the CSA’s focus on enforcing and deterring misconduct in the growing digital economy. In support of this, the CSA points to its participation this past year in Operation Cryptosweep, a coordinated series of enforcement actions by North American securities regulators to crack down on illegal Initial Coin Offerings (ICOs) and crypto-asset related investment products. With CSA members developing and hiring digitally specialized to increase their in-house capabilities (including data scientists, analysts and blockchain specialists), we can expect a spotlight to remain on enforcement in the emerging technologies space in the coming year.

The annual report also focuses on the CSA’s efforts to collaborate with and bring together regulators across global jurisdictions, to share best practices and align on enforcement priorities, including through the Cross-Border Market Fraud Initiative (CBMFI) to advance the multijurisdictional response to emerging pump and dump threats, and by hosting the sixth edition of the Insider Trading and Market Manipulation (ITMM) Conference in Quebec, City in September 2018. This collaboration is also evidenced across provinces and territories, with 82 files referred to among the various provincial jurisdictions for further enforcement action over fiscal year 2018/2019.

Notably, the report highlights that “CSA members continued to develop and leverage new technologies that enhance our ability to examine, with greater detail, the way our markets function. This includes the Market Analysis Platform (MAP), which is being designed to help CSA members better identify and analyze market misconduct through a central data repository and analysis system. Such tools and resources foster collaboration across jurisdictions and with other market participants, and allow CSA members to better leverage the data available and cover more ground in today's exceedingly fast markets”.  

Looking at the hard numbers, in fiscal year 2018/2019, CSA members concluded a total of 94 matters, involving 177 respondents. The vast majority of these matters related to illegal distributions (72 matters) and fraud (32 matters). These numbers hold firm with respect to proceedings commenced in fiscal year 2018/2019 – of 172 matters commenced in fiscal year 2018/2019, 54 relate to illegal distributions, and 51 relate to fraud. This reveals not only a focus of CSA members, but also evidences the inherent issues and hurdles with pursuing enforcement cases in other areas. For example, figures relating to proceedings concluded and commenced in fiscal year 2018/2019 in respect of illegal insider trading, market manipulation, and registrant misconduct are notably lower.

Fines and administrative penalties imposed in fiscal year 2018/2019 are slightly up from fiscal year 2017/2018 (rising from $65 to $77.5 million). The more notable swing is in respect of CSA members’ restitution and disgorgement, with just shy of a 50% increase from last year’s figures (rising from $59 million to $110 million). In addition to the above tools, CSA members continue to leverage alternative preventive measures, including 100 cease trade orders, 89 asset freeze orders, 46 investor warnings, and 81 market bans in the past year. Of those, 48% of individuals and 78% of companies received lifetime bans.

The CSA annual report highlights that enforcement priorities align with the overall priorities of the CSA and its members. The market should look to the regulators’ statement of priorities (which in the case of the Ontario Securities Commission was just released) to further interpret their enforcement effectiveness.