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Canadian CFA Charterholders Want a More Streamlined Regulator Model and Stronger Enforcement Practices

 

 2009 Canadian Financial Market Integrity Index now available

 

New York, September 11, 2009 – The CFA Institute Centre for Financial Market Integrity today released results of the 2009 Financial Market Integrity Index (FMI) report for Canada, with Canadian CFA charterholders continuing to show less confidence than non-Canadian charterholders in the effectiveness of Canadian regulatory and investor protections.

 

The FMI gauges CFA charterholders’ perceptions of the state of ethics and integrity in six different markets around the world and how these perceptions change over time. The FMI measures the level of integrity – the ethics of market participants and the effectiveness of market systems in ensuring market integrity – that CFA charterholders experience in their respective markets: Canada, Hong Kong, Japan, Switzerland, the United Kingdom, and the United States. (Read all reports.)

 

“It is interesting to note that the comments of Canadian survey respondents are largely unchanged from those expressed in 2008, with the country’s regulatory system at the top of their list of concerns,” said Kurt Schacht, CFA, managing director of the CFA Institute Centre. “Those who commented on regulation in Canada often endorsed a one-regulator model to help coordinate regulation and strengthen regulatory enforcement. It is our hope that regulators and government will add CFA Institute to the growing list of those supporting the adoption of a single national regulator in Canada.”

 

The Canadian FMI also reported:

 

  • Based solely on the integrity of market participants and the effectiveness of regulatory and investor protections, respondents in Canada show only a slightly lower inclination to invest in the Canadian markets than they did last year. The percentage of respondents who said they were likely or very likely to invest in Canada dropped to 72 percent in 2009, compared to 79 percent in 2008.

 

  • In the comments section of the survey, respondents expressed concern about the ethical integrity of financial advisers, specifically over the perceived lack of competence among some (but by no means all) Canadian financial advisers. They also commented on incentives, including questions as to whether advisers always put clients’ interests before their own.

 

  • When rating the ethical behavior of individual market participants, the perceived ethical behavior of hedge fund managers rated lowest at 2.6, a statistically significant drop from 2008. At 3.7, pension fund managers received the highest marks.

 

  • Many respondents also expressed concern about the state of transparency in the Canadian market. The issue raised most often was the need for better transparency about the risk of an investment or the risk inherent in a company’s assets (which, they said, are too often not being disclosed to investors).

 

On the issue of Canadian corporate boards and corporate executives, the ratings for each remain consistently above an average of 3.0 (3.3 for boards and 3.1 for executive management), suggesting respondents do not perceive these professionals to be responsible for the recent market turmoil.

 

That said, the comments received reflect a sentiment that the ethical behavior of each group can be improved with an even larger number of respondents expressing opinions about incentive structures. Many of these comments focused on the compensation of senior executives and the role Canadian boards played in awarding what many view as excessive executive compensation. Additionally, most respondents spoke about the need to link pay and performance and long-term incentives at the executive level.

 

More than 2,000 investment professionals – including more than 500 in Canada - with the CFA designation participated in the research for the 2009 FMI by taking the survey either online or by scripted telephone interview between February 26, 2009 and March 13, 2009.

 

"It is clear that Canadian CFA charterholders continue to lack confidence in the effectiveness of Canadian regulatory and investor protections,” said Matthew Orsagh, CFA, CIPM and project manager for the FMI Integrity Index. “Future surveys will determine how much the actions being taken today will affect trust in the Canadian financial system in the future.” 

 

Editors’ Note: In related news, the Canadian Advocacy Council for Canadian CFA Societies (CAC) recently conducted a survey that gauged the opinions of 11,507 Canadian CFA charterholders on the issue of a single national regulator. These results will be released next week.

 

About the CFA Institute Centre for Financial Market Integrity

The CFA Institute Centre develops timely, practical solutions to global capital market issues, while advancing investors’ interests by promoting the highest standards of ethics and professionalism within the investment community worldwide. It builds upon the CFA Institute 40-year history of standards and advocacy work, especially its Code of Ethics and Standards of Professional Conduct for the investment profession, which were first established in the 1960s.