Portfolio managers to discuss BCSC compliance report by nyb13813

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									                       BRITISH COLUMBIA SECURITIES COMMISSION                                                                FALL 2001                  ISSUE 7




                                                Registrant
                                          THE
IN THIS ISSUE:                                                                                                                     Your Industry Newsletter


2 Ethical Issues:                        Portfolio managers to discuss
  Lending and borrowing
  best left to others                    BCSC compliance report
2 Industry feature                          THE BC SECURITIES COMMISSION          ously harm the industry’s reputation           Halischuk said the commission
                                         will seek feedback during a day-         and put in jeopardy a firm’s contin-        sees value in meeting informally
3 MFDA Update:                           long, interactive session this fall      ued registration.”                          with industry to discuss the deficiencies
  The next steps                         from compliance staff at 20 BC                                                       staff found during examinations.
                                         portfolio     management       firms     MAJOR DEFICIENCIES                             “We recognize the value in obtain-
                                         where it conducted compliance            O U T L I N E D I N T H E R E P O RT        ing the views of the industry. The ses-
4 Website tools                          examinations.                            INCLUDE:                                    sion will not only accomplish that,
                                             BCSC staff conducted examina-        • incomplete compliance policy              but will also give industry members
4 The drive to T+1                       tions between October 1996 and             and procedures manuals                    an opportunity to voice their con-
                                         December 2000 and published the          • deficient “know-your-client” practices    cerns and hear the views of their
                                         deficiencies discovered at the firms     • inadequate record-keeping                 peers. The result is often that the
5 IDA Update:                            in a report released to the industry     • inadequate personal trading               group identifies issues of which we
  The ABCs of the IDA                    July 30, 2001.                             procedures                                as regulators were not aware.”
                                            “We are concerned about the sig-      • advertising and marketing                    Halischuk indicated that the
6 Caught in the Act:                     nificant number of serious compli-         concerns                                  commission would schedule more
  Settlements, hearings                  ance deficiencies identified during      • unregistered advising staff, and          interactive forums in the future. He
  and breaches of                        our examinations,” Gerry Halis-          • lack of disclosure.                       also said that several of the 20 firms
  legislation                            chuk, BCSC’s director of Capital            The interactive forum in October         included in the report would be
                                         Markets Regulation, said in issuing      is the second session the BCSC is           re-examined over the next 12 to 18
                                         the report.                              hosting to get feedback from a group        months.
                                            “These deficiencies indicate          of compliance officers. A similar              For the date of the upcoming
7 Industry conference to
                                         inadequate compliance practices          session was held several months ago         session and more information, please
  become annual affair
                                         and procedures that can lead to          with compliance staff from scholar-         contact Steve Plummer, Manager of
                                         breaches of securities legislation,”     ship plan dealers.                          Compliance, at 604-899-6602.
                                         he said. “Those breaches can seri-




BCSC supports training for future industry players
THE BCSC IS GIVING $75,000 IN SUPPORT OF A NEW, UNIVERSITY-LEVEL INVESTMENT MANAGEMENT PROGRAM THAT


FEATURES AN ETHICAL AND REGULATORY COMPONENT IN ITS CURRICULUM.


   SIMON FRASER UNIVERSITY’S MBA IN GLOBAL ASSET AND WEALTH MANAGEMENT            ulatory framework in British Columbia.”
program is expected to debut next fall to train financial professionals for the      The commission will participate in a business council made up of selected
investment management industry. In addition to teaching the fundamentals          investment industry professionals to help the program maintain a curriculum
of finance, asset allocation and security selection for an investment portfo-     that covers relevant topics – including regulatory issues – in the investment
lio, the program will also help prepare students for the ethical considerations   industry. The council will oversee a student-run investment management ser-
and client management side of the business.                                       vice, provide work terms for students, and contribute to an executive speakers
   “We think Simon Fraser’s program is an excellent way to reinforce the          series. The commission will contribute $75,000 to the program over a three-
importance of compliance in the investment industry,” said BCSC Executive         year period from the $3.89-million BCSC Education Fund.
Director Stephen Wilson in approving the grant.                                      The BCSC Education Fund was established to promote investor educa-
   “It is our hope that students who successfully complete this program                                                                        TRAINING
become competent financial managers with a good understanding of the reg-                                                                      Continued on page 2
     Ethical Issues: Lending and                                                                                                          TRAINING
                                                                                                                                          Continued from page 1

     borrowing best left to others
    N E I T H E R A B O R R OW E R N O R       the use of these accounts. However,          ing” money from a client has proven          tion and industry understand-
    A LENDER BE . . .                          these rules and procedures do not apply      to be simply another way to describe         ing of securities regulation in
       Shakespeare’s advice about borrow-      to other categories of registration.         fraud and misappropriation. In Jan-          the province. It is funded
    ing and lending money still has a lot of       As a registered dealer or adviser, you   uary 1998, the commission imposed            through administrative penal-
    currency in today’s financial world.       have a great deal of influence over the      a 30-year trading ban against an             ties that the commission levies
    There is no specific language in the       financial affairs of your clients. Loaning   Abbotsford mutual fund salesper-             against those who violate the
    Securities Act barring you, a registered   funds to a client may influence decisions    son who “borrowed” $555,000 from             Securities Act and Regulations.
    dealer or adviser, from lending money to   you make for that client’s account.A con-    clients who came to him for finan-           Also put into the fund are
    or borrowing money from a client.          flict of interest situation arises because   cial advice. He was also sentenced           monies the commission col-
    However, there are some sound reasons      your client also becomes your debtor.        to a year in prison and ordered to           lects in excess of its costs
    why you should avoid the practice.             Borrowing money from a client            repay his clients $535,000.                  when it negotiates settlements
       Although investment dealers, regulat-   presents the same set of problems.              Your best bet? Leave the borrow-          with those who have violated
    ed by the Investment Dealers Associa-      No longer are you providing objec-           ing and lending to the banks and             the Act.
    tion (IDA), are permitted to loan money    tive, independent advice to your             brokerage firms with regulated mar-
    to clients through the use of margin       client because you have your own             gin account procedures. You end up
    accounts, they are subject to compre-      financial interests to consider first.       serving your clients better by not
    hensive rules and procedures governing         With some registrants, “borrow-          engaging in either practice.




    Industry Feature: Firm finds attention to
    compliance pays dividends
2
     DENNIS DACIUK DOESN’T                                                                     He says the three pillars for compli-   enced investors in the securities
                                                                                            ance for his now seven-person depart-      market, Daciuk says the need for
     HOLD ANY ILLUSIONS                                                                     ment are:                                  investment advisers to help educate
                                                                                            1. Putting the client first                and watch out for their clients has
     ABOUT WHAT SALES REPS                                                                  2. Independence                            never been greater.
                                                                                            3. Zero toleration for securities             He emphasizes the importance of
     THINK OF COMPLIANCE                                                                       violations                              the “know your client” rule for sales
                                                                                               Daciuk says a good rule-of-thumb        reps.
     OFFICERS.                                                                              ratio is one compliance officer to            “Reps must really listen to their
                                                                                            every 100 sales rep for adequate com-      clients and know their risk toler-
       “WE ARE USUALLY CALLED THE                                                           pliance coverage at a brokerage house.     ance, investment knowledge and
                                                      D E N N I S DAC I U K
    sales prevention department,” he                                                           Besides the expected tasks of           return objectives.”
    laughs. “My response to this is we are                                                  reviewing sales reps’ marketing               Daciuk sees his primary role as
    the sales protection department.”             “We need to have everyone                 materials, following client com-           that of an educator who helps
       Since Daciuk started as Great           embrace and work with compliance             plaints, approving new accounts            investment advisers perform their
    Pacific Management Co. Ltd.’s sole         in order to eliminate liability for our-     and orienting new representatives          work better.
    compliance officer in 1995, he has         selves while putting our clients’            to the company’s compliance proce-            “I like to think that Great Pacific’s
    seen a steady change in attitude           interests first.”                            dures, Daciuk has, at times, had to        salespeople think of my department
    towards compliance on Howe Street             Daciuk recognizes that some               take his compliance duties a step          less as a police department, but
    and in the investment community.           firms are better than others in their        further.                                   rather, here to help protect them
       “In today’s complex investment          compliance practices and says that              “In one case, I had to travel to        and their clients.”
    environment, compliance and                there has to be a “corporate culture         another city and help interview a new         “My role is to protect the investor
    ethics in the securities investment        of compliance” throughout a com-             group of investment advisers that we       and to educate the sales rep,” says
    industry has become a major issue          pany before sales reps readily               were considering hiring,” he says.         Daciuk.
    and concern to regulators and deal-        embrace the concept.                            Daciuk says, based in part on his
    er firms,” he says.                           “We don’t try to browbeat anyone          concerns about the group’s compli-
       He points out that today’s              into good compliance behaviour at            ance record and his recommenda-
    investors are quick to take legal          Great Pacific,” he says. “Instead, we        tion against them, the group was not
    action against investment advisers         try to achieve this through moral            hired.
    and their firms when things go awry.       suasion and education.”                         With so many new and inexperi-
 National Registration                                                             Insider reporting training
 Database                                                                             DIRECTORS, EXECUTIVES AND OTHER INSIDERS OF CANADIAN PUBLIC
                                                                                   companies will be required to begin electronic filing of their stock trades and
   TRAINING SESSIONS FOR THE NEW WEB-BASED NATIONAL REGISTRATION                   transactions this November using a new national Internet-based system.
Database (NRD) currently being developed by securities regulators across              National Instrument 55-102 –The System for Electronic Disclosure by
Canada are expected this winter.                                                   Insiders (SEDI) takes effect October 29, 2001. Under the National Instru-
   The new database will allow individual registrants to file applications for     ment, insiders will be required to file insider reports electronically beginning
registration electronically to a single location and will help speed up the        November 13, 2001 and the public will be able to access these reports as of
application process by eliminating the need for separate paper applications        this date.
to each applicable jurisdiction.                                                      To help you make a successful transition to electronic filing, the BCSC is
   Currently individuals wishing to register in more than one province or          offering two free training sessions:
territory must submit a separate, paper-based application form to each                Session 1:        Tuesday, October 23             9:00 am - 11:00 am
jurisdiction where they wish to do business. The new database will collect,           Session 2:        Tuesday, October 23             1:00 pm - 3:00 pm
process and maintain this information in one system – eliminating duplication.        Location:         Vancouver Convention & Exhibition Centre
   The BCSC will notify chief compliance officers at registered firms of the                            999 Canada Place
dates for the training sessions by email. Once finalized, information on the                            (Adjoining) Meeting Rooms 8 & 15
training sessions will also be posted on the commission’s website at                  Seating is limited, so please reserve a spot by Tuesday, October 16.
www.bcsc.bc.ca.                                                                    To confirm your registration, please contact Cheryl Odell at 604-899-6727 or
                                                                                   e-mail codell@bcsc.bc.ca.
                                                                                      For the news release and more information on SEDI, please visit
                                                                                   www.bcsc.bc.ca.




  MFDA Update: The next steps
By Wendy Royle,                           tion owns your firm, your applica-       complying with securities legisla-       consent is the same as the consent
Pacific Regional Director, MFDA           tion will be reviewed in Toronto.        tion and have been given sufficient      you gave on your Form 4 when you          3
                                             Once the detailed review is com-      time to improve any compliance           initially registered with the BCSC.
   The Mutual Fund Dealers Asso-          pleted successfully, a memo recom-       deficiencies.                            Now that the MFDA is assuming
ciation of Canada (MFDA) was              mending that your firm be accepted          If your firm hasn’t resolved its      regulation of mutual fund dealers,
officially recognized in British          as a member is forwarded to the          compliance deficiencies, then the        this consent was simply extended to
Columbia on February 9, 2001. As          Executive Committee of the Board         MFDA may have some concerns              the MFDA.
of July 2, 2002, all firms registered     of Directors of the MFDA to review       about granting membership. If you
as mutual fund dealers in BC are          the recommendations. After receiv-       are a representative, ask your           I S T H E R E A N YO N E I C A N
required to be a member of a self-        ing Executive Committee approval,        branch manager or head office            C O N TA C T I N B R I T I S H
regulatory organization (SRO). In         your firm will be sent a letter indi-    compliance officer about your            COLUMBIA ABOUT THE
addition, all firms registered as         cating that you have been accepted       firm’s most recent audit and how         M F DA ?
securities dealers in BC are              as a member.                             well they performed. As a registered        Yes, the MFDA opened a region-
required to be a member of an SRO                                                  representative with the firm, you        al office in Vancouver in May 2001.
by October 1, 2002.                       W H AT I F T H E F I R M I W O R K       have a right to know.                    You may contact Wendy Royle,
                                          W I T H I S N ’ T AC C E P T E D A S A                                            Pacific Regional Director at 604-
W H AT A R E T H E N E X T                MEMBER?                                  W H Y D I D I H AV E T O S I G N         331-4755 or visit our website at
STEPS IN MY MEMBERSHIP                      If your firm isn’t accepted as an      THE SCHEDULE G BEFORE                    www.mfda.ca.
A P P L I C AT I O N ?                    MFDA member, then your firm’s            M Y F I R M C O U L D A P P LY T O
   After the MFDA’s Toronto head          registration will expire in July 2002,   T H E M F DA ?
office receives a firm’s membership       and the representatives employed            Every registered representative is
application, MFDA staff review the        by your firm can transfer to a firm      required to sign a Schedule G form
application, identify any omissions,      that is a registered MFDA member.        prior to the firm applying for mem-
and, if necessary, send a letter to the                                            bership. The form includes various
applicant asking for further clarifi-     H OW O F T E N I S                       declarations, including agreement
cation or information.                    MEMBERSHIP REFUSED?                      to abide by MFDA Rules.
   After receiving the missing docu-         Most mutual fund dealers in BC           Some representatives have
ments, the BC-based firm applica-         have already participated in at least    expressed privacy concerns regard-
tions are forwarded to the Pacific        one compliance audit by BCSC             ing the consent to provide “any
Regional office for detailed review.      staff examiners. So, most firms in       information from any source.” The
If a firm based in another jurisdic-      BC already know how well they are        MFDA would like to clarify that the
    Registration time rolls                                                            Website Tools:
    around again                                                                     BCSC “CHEAT SHEET” SPEEDS UP DOCUMENT SEARCHES


                                                                                        STILL HAVING TROUBLE ADJUSTING TO THE FIVE-DIGIT NUMBERING SYSTEM FOR
      DOES YOUR REGISTRATION EXPIRE             Please note that we are not send-    commission documents? Pining for the days of NINs, BORs and LPSs?
    December 31, 2001? All firms and         ing out hard copies of renewal             The Canadian Securities Administrators has used the numbering system for
    individuals whose registration does      notices this year. All renewals that    national documents since 1996. Last year, we decided to convert all our local
    expire December 31, 2001 should          we grant will appear electronically     BC documents to the same system. We developed the new numbering system to
    have received a renewal notice by        within 24 hours of approval on our      ensure that all documents relating to a particular subject matter would be
    now.                                     BCSC registration database. You         grouped together and, therefore, easier for you to locate. For example, any docu-
       You should be aware that with         can check your registration by visit-   ment relating to registration, starts with the number 3. Previously, documents
    more than 19,000 registrants in the      ing the database at www.bcsc.bc.ca      were divided into groups based on the type of document–Forms, Notices,
    province, we cannot guarantee that       and following the prompts.              Blanket Orders and Policies – and numbered chronologically.
    your registration will be renewed           During the past year, we have been      Some industry professionals have told us that they are still scratching their
    prior to the December 31 expiry          changing the registration system so     heads over our numbering system.
    date if we receive your application      that everyone registered to trade or       In response, we developed the Numerology Cheat Sheet to assist you with the
    after December 1, 2001.                  advise in securities and exchange       transition to the new numbering system. You will find the Cheat Sheet under the
       When you review this year’s           contracts will be required by Decem-    Policy & Legislation link of our website. It provides a quick guide to the five-digit
    renewal notice, you will notice that     ber 31, 2002 to renew their registra-   numbering system. The easy-to-read table is divided into headings that indicate
    we ask you the same questions that       tion annually by December 31 of         what each number means. Follow the Cheat Sheet and NI 35-101 will make
    we pose on Form 5 (now BC Form           each year.                              perfect sense to you.
    31-904F). Be sure to review the             If you have any questions concern-      Have you lost your favorite document? Check our Table of Concordance, also
    questions with all your registered       ing the renewal process, please call    found under the Policy & Legislation link of our website. It lists the “Old
    staff and file a schedule with details   Karin Armstrong at 604-899-6692.        Number”, “Old Title”, and the corresponding “New Number” of many docu-
    of any positive responses.                                                       ments. So if you’re wondering, what happened to Form 61? Check the table and
                                                                                     you will find that it is now called BCF 51-901F.
                                                                                        If you’re having any problems locating a document, or need assistance with
                                                                                     the numbering system, please contact Veronica Armstrong in our Policy and
4                                                                                    Legislation Division at 604-899-6738.
    The drive to T+1
      By Eric Pelletier,                                                             Greenspan. “Without a complete                   with securities trades
      Canadian Capital Markets               United States and other countries.      re-engineering of the process using            • improve productivity
      Association                            It presents challenges and potential    new technology, further increases in           • reduce collateral requirements
                                             benefits to all participants in the     trading volumes will soon result in            • improve liquidity
       THE CANADIAN SECURITIES               securities industry. It will also       serious capacity problems – which
    industry plans to reduce the time it     require a coordinated effort to         could ultimately compromise the             C A N A D I A N I N V E S TO R S
    takes to clear and settle a trade from   develop and execute the necessary       equity markets.”                               T+1 and greater automation will:
    three days (T+3) to one day (T+1)        steps to reach T+1 within the next                                                     • reduce risk
    by mid-2004, with testing beginning      three years.                               T+1 will bring significant bene-            • improve service
    in 2003. The achievement of this            As the initiative proceeds, its      fits including:                                • increase liquidity
    goal will involve the coordinated        impact will extend far beyond faster                                                   • support round-the-clock trad-
    efforts of all participants in the       trading. “T+1 is important to main-     SYSTEM-WIDE                                     ing – anytime, anywhere – now
    securities industry.                     tain Canadian competitiveness,”           Reducing credit risk associated               demanded by a growing number
       By cutting the time lag in settle-    said Al Cooper, Chair of the Cana-      with unsettled trades will:                     of investors
    ments from the current three days        dian Capital Markets Association          • free up capital
    to one, the industry and regulators      (CCMA) and President and CEO              • strengthen our financial                   To participate in testing in 2003
    want to reduce the risk that stock or    of the Canadian Depository for              markets                                 and achieve T+1 by mid-2004,
    bond values may decline between          Securities Ltd.                           • keep Canada competitive with            organizations will have to start plan-
    the time an investor initiates a trade      In the US, Federal Reserve               the US and the rest of the              ning now to accommodate the
    and the time when they settle the        Chairman Alan Greenspan has                 world                                   required investment of time and
    trade with the exchange of cash for      publicly emphasized the impor-                                                      money. The CCMA has developed a
    the security. The longer this process    tance of the T+1 initiative.            SECURITIES MARKET                           checklist for organizations within
    takes, the greater the risk that the     “Already there are signs that trading   PA R T I C I PA N T S                       the investment industry to assess
    investor will not have the cash          volumes are straining the capacity        Further automation of trade pro-          their preparedness for T+1. You can
    necessary to settle the trade.           of the infrastructure – an increas-     cessing will:                               find this checklist along with more
       The drive toward T+1 coincides        ing number of transactions are fail-      • reduce credit exposure and              information on the move to T+1 at
    with similar efforts under way in the    ing to settle as scheduled,” said           operational risks associated            www.ccma-acmc.ca.
  In the Spotlight: Capital Markets Regulation
   THIS    SPRING ,    THE     BCSC ’ S   through education or disciplinary        1 . R E G I S T R AT I O N &                 2 . E X A M I N AT I O N S
registration and compliance func-         action than under the old organiza-      M A R K E T R E G U L AT I O N                  Monitors the conduct and sol-
tions were merged into a new divi-        tional structure,” he said.                 Reviews and processes applica-            vency of registrants to ensure com-
sion called Capital Markets                  “This means the commission is in      tions for registration of all dealers,       pliance with securities legislation.
Regulation.                               a better position to serve the inter-    underwriters, advisers, and salespeo-        This is done through the review of
   “The change reflects our greater       ests of investors and preserve the       ple in BC who are not members of             financial reports and on-site exami-
emphasis on compliance within the         integrity of BC’s capital markets.”      the Investment Dealers Association           nations.
registrant community,” said Gerry            Capital Markets Regulation is         of Canada (IDA) or the Mutual
Halischuk, the division’s new director.   comprised of three branches with         Fund Dealers Association of Canada           3. COMPLIANCE
   “Within our new division, we are       the following functions:                 (MFDA).                                         Works with registrants to help
now able to identify compliance-                                                      Also monitors and audits the reg-         them understand and meet their
related issues more efficiently and                                                ulatory functions of the IDA,                compliance obligations. Compliance
deal with them more effectively                                                    MFDA and the Canadian Venture                staff may recommend administra-
                                                                                   Exchange (CDNX).                             tive sanctions when registrants fail
                                                                                                                                to meet these obligations.
                                                                  Capital Markets Regulation
                                                                  Gerry Halischuk, Director




               Registration and Market Regulation                      Examinations                                       Compliance
                    Robert Hudson, Manager                         Michael Sorbo, Manager                           Steve Plummer, Manager




  IDA Update: The ABCs of the IDA                                                                                                                                      5

By Warren Funt,                                                                       As a result of these regulatory developments, the number of registrants
Vice-President Member Regulation Western Canada, IDA                               under IDA jurisdiction in BC increased nearly six-fold during the past five
                                                                                   years, from 1,200 in 1996 to nearly 7,000 today. The number of member
W H O I S T H E I DA ?                                                             firms under the IDA’s audit jurisdiction also increased significantly.
   The Investment Dealers Association of Canada (IDA) is the national self-           During the period 1997-2000, the IDA tripled the size of its staff and bud-
regulatory organization responsible for regulating the activities of investment    get devoted to the Pacific District office to ensure our ability to meet these
dealers in terms of their capital adequacy and conduct of business. To             new regulatory challenges. Additional staff were hired by the Pacific office to
qualify as a member firm, an organization must:                                    conduct financial and sales compliance examinations, as well as to handle
• meet stringent capital requirements,                                             investigative and enforcement matters.
• demonstrate the ability and willingness to conduct its business in a manner         In particular, resources have been devoted to enhancing the registration
    consistent with the laws, rules and regulations of the Association, and        process, an area that impacts everyone who sells and trades in the Pacific
• be subject to ongoing supervision.                                               District. More recently, the association has made changes to its management
Member firm employees who deal with the public must be appropriately               structure to ensure that the decisions we make reflect regional needs and
licensed. Investor protection is a top priority.                                   realities.
   Member regulation involves registration, financial compliance, sales com-          A new position of Vice-President Member Regulation Western Canada
pliance and enforcement. As a self-regulatory organization, the IDA is over-       was created and Warren Funt, former Regional Director Pacific District,
seen by the BC Securities Commission, the securities regulator in this             assumed the post.
province. The association has the authority to prosecute individuals and
firms who are suspected of wrong doing and, where fault has been proven, to        I S T H E R E PA C I F I C D I S T R I C T R E P R E S E N TAT I O N O N
impose penalties in the form of reprimands, fines, suspensions and                 T H E I DA B OA R D ?
expulsion from membership.                                                           The IDA Board of Directors also reflects Pacific District representation.
                                                                                   At our recent annual meeting, Terry Salman, Chairman, Chief Executive
H OW H A S T H E I DA C H A N G E D OV E R T H E L A S T F I V E Y E A R S ?       Officer and President of BC-based Salman Partners Inc., was appointed
   During the past five years, the Association’s regulatory responsibilities in    Vice-Chair of the IDA Board. Terry and fellow BC residents Ross Sherwood,
British Columbia have increased as the IDA assumed member regulation               Odlum Brown; Richard Rousseau, National Bank Financial Limited; and
responsibilities formerly discharged by the Toronto Stock Exchange (TSE) and       Public Director John Howard, QC, will join their colleagues on the IDA
the Canadian Ventre Exchange (CDNX). In February 1997, the TSE transferred         board, member firm delegates, and association guests at the IDA’s 87th
responsibilities to the IDA. In January 2000, the CDNX formed in November          annual meeting and conference scheduled to take place in Whistler from
1999 by the merger of the Alberta and Vancouver exchanges, followed suit.          June 16-18, 2002.
    Caught in the Act
                                                                          Settlements, Hearings and

                                                                          Breaches of Legislation

    BROKERS WHO PUT SELF-                      the signatures of two clients in             BCSC staff allege the Securities
    INTEREST AHEAD OF                          August 2000 and used $31,498.14           Act violations also include failure to:
    C L I E N T W E L FA R E R E C E I V E     for personal purposes, an act of            • adhere to the know-your-client
    SANCTIONS                                  fraud under the Securities Act. After         rule (Section 48), and
                                               investigating the fraud, Investors          • establish and apply written
       In June, stockbrokers Robert            Group immediately dismissed                   prudent business procedures
    Hartvikson and Blayne Johnson              Sowemimo and reimbursed the                   for dealing with clients (Section 44).
    were banned from the BC securities         clients he defrauded.                       Commission staff also allege that
    market for a year and ordered to pay                                                 Pacific International should have
    the maximum penalty of $100,000            L AC K O F S U P E RV I S I O N           been tipped to the possibility of ille-
    each, following a lengthy hearing          C O S T S M U T UA L F U N D              gal conduct by certain activity in
    into Cartaway Resources Corp.              DEALER $25,000                            several client accounts.
       The sanctions were levied after            Ontario-based mutual fund deal-
    the commission found that the pair         er W.H. Stuart Mutuals Ltd. agreed        US ONLINE BROKERS MUST
    violated the Securities Act and were       to pay the commission $25,000,            P L AY B Y C A N A D I A N R U L E S
    in a conflict of interest, had failed to   including investigative costs, for its       A trio of U.S. online brokers have
    act in the best interests of their         failure to supervise the activities of    agreed to pay Canadian securities
    clients and took personal advantage        its sales staff or keep proper records.   regulators more than $2 million
    of their role in managing Cartaway            As part of the settlement, W.H.        (Cdn) resulting from accepting and
    Resources.                                 Stuart also agreed to appoint an          executing trades or orders on behalf
       The       commission          found     independent auditor to review com-        of Canadian clients.
    Hartvikson and Johnson acted in            pliance procedures at each of its BC         The three brokers, Datek Online
6   their own interest by withholding          offices.                                  Brokerage Services LLC, Ameri-
    information from clients and the              The problems at W. H. Stuart           trade Inc., and TD Waterhouse
    market while acquiring large blocks        came to light during a BCSC audit         Investor Services (US) admit they
    of Cartaway shares. Trading reports        of the company’s activities between       were not registered in Canada to
    show that Johnson and Hartvikson           1995 and 1999.                            execute trades or orders for Canadi-
    personally made more than $5.1                Key findings of the audit include:     an residents. Securities legislation
    million by trading in Cartaway                • Failure to maintain complete         in each province requires that a
    shares while the two were employed               and accurate records of its         dealer be registered before it can
    at First Marathon Securities’                    business transactions,              trade. Each has agreed to pay
    Vancouver office.                             • Failure to establish and apply       $800,000.
       The two stockbrokers are also                 written business procedures            Datek and Ameritrade also
    barred from serving as directors and             for dealing with clients,           agreed to seek registration in the
    officers of any reporting issuer for          • Failure to approve opening of        Canadian provinces and territories
    one year. As well, the pair must                 new client accounts, and            in which they have clients. In
    successfully complete a course on             • Failure to supervise transac-        return, the companies have been
    the duties and responsibilities of               tions made for clients.             granted exemptions to continue
    directors and officers.                                                              making trades on behalf of existing
       The two brokers have appealed           PA C I F I C I N T E R N AT I O N A L     clients until September 30, 2001,
    the decision.                              S U M M O N E D TO H E A R I N G          providing they otherwise comply
                                                  The commission will hear allega-       with the regulations.
    M U T UA L F U N D S A L E S M A N         tions that Vancouver-based Pacific           TD Waterhouse (US) has trans-
    BARRED FROM MARKET FOR                     International Securities Inc. and its     ferred its Canadian clients to TD
    10 YEARS                                   directors ignored their duty as           Waterhouse (Canada) as of Decem-
       A mutual fund salesman was              market “gatekeepers” and failed to        ber 18, 2000.
    barred from the BC securities mar-         investigate questionable client trades.
    ket for 10 years after he defrauded           In a Notice of Hearing, BCSC
    two clients of more than $31,000.          staff allege that from July 1, 1995 to
       Abiodun Sofoluwe Sowemimo, a            December 31, 1999, the investment
    former employee with a Vancouver           dealer and its directors failed to take
    office of Investors Group Financial        proper compliance action on
    Services, admitted he had forged           account activity.
                                                                                      New requirements
 The Registration Diary
                                                                                      enhance investor
                                                                                      protection
                                                                                         THE BCSC AND CANADA’S OTHER              • You are prohibited from making
                                                                                      securities commissions have adopt-          it a condition of supplying
                                                                                      ed new requirements designed to             products or services that a person
                                                                                      increase protection for investors.          or company settle their account
                                                                                         National Instrument 33-102,              with you through that person’s or
                                                                                      which came into effect August 1,            company’s account at a Canadian
                                                                                      2001, replaced the former policy            financial institution.
                                                                                      known as the Principles of Regula-          • You are prohibited from tied
                                                                                      tion. The former policy applied only        selling.
                                                                                      to dealers owned by financial institu-      • If you conduct securities-related
                                                                                      tions or operating in their premises.       activities in a financial institution,
Registered firm updates from               Penson Securities Inc. changed its         The new rule applies to all regis-          you are required to disclose that
March 31/01                                name to Swift Trade Securities Inc.        trants. It creates the following new        purchased securities are not
                                           on July 11/01                              requirements for registrants:               insured or guaranteed, that they
Fidelity Investments Canada Ltd.                                                         • You are required to provide your       may fluctuate in value and that
was registered as a Portfolio              Rae & Lipskie Investment Counsel              retail clients with a written warn-      you and the financial institution
Manager on July 19/01                      Inc. was registered as a Portfolio            ing about the risk of using lever-       are separate entities.
                                           Manager on July 10/01                         age to finance the purchase of           The commission has repealed
Holdun Investment Management                                                             securities.                           the requirement to file notices of
Inc. was registered as a Portfolio         Solium Capital Online Inc. was                • You must hold all information       networking arrangements. How-
Manager on July 11/01                      registered as an Investment Dealer            about your retail clients confi-      ever, staff in our Capital Markets
                                           on Sept. 5/01                                 dential except where required         Regulation Division will continue
MD Private Investment Manage-                                                            or permitted by law, or by the        to monitor any networking
ment Inc. was registered as a              T.E. Investment Counsel Inc. was              bylaws of a self-regulatory           arrangements you have with finan-           7
Portfolio Manager on April 6/01            registered as a Portfolio Manager on          organization, or where the client     cial institutions, insurers and
                                           July 10/01                                    consents to the disclosure of the     other parties.
                                                                                         information,




BCSC encourages                                                                       Industry conference to
compliance officer                                                                    become annual affair
networking                                                                            THE COMMISSION’S CAPITAL IDEAS CONFERENCE WAS SO


                                                                                      WELL-RECEIVED BY INDUSTRY THAT THE BCSC PLANS TO MAKE
   THE BCSC’S SECOND ANNUAL MEET & GREET FOR COMPLIANCE OFFICERS
will be held at the Law Courts Inn on Tuesday, Sept. 25 from 4:30 p.m. to 7:30 p.m.   IT AN ANNUAL EVENT, SAYS BCSC CHAIR, DOUG HYNDMAN.
   “This is part of our increased emphasis on compliance within the indus-
try,” says Gerry Halischuk, director of Capital Markets Regulation – the                 “THE SECURITIES MARKETS ARE CHANGING FAST, AND SO IS THE BCSC AND
commission division hosting the reception.                                            its approach to regulation,’’ said Hyndman. “The conference allowed us to
   “Our goal is to help industry compliance staff in their efforts. This is a         inform the securities community about the challenges we face as a regula-
good opportunity for compliance officers to meet one another, to speak with           tor, and provide a forum for industry participants to express their views and
commission staff, and to hear about some of the initiatives commission staff          experiences.”
have undertaken.”                                                                        Over 150 BC investment professionals attended the first Capital Ideas
   After last year’s successful event, the BC Provincial Compliance Officer’s         Conference hosted by the BCSC on Wednesday, June 6 at the Vancouver
Forum was developed so compliance officers of mutual fund dealers could               Renaissance Hotel.
hold regular meetings to discuss common issues and concerns throughout
the year. For more information on the group, please contact the BC coordi-                                                                      CONFERENCE
nator, Dawn Mattern at 604-437-6101.                                                                                                            Continued on page 8
CONFERENCE

                                                                                                        Registrant




                                                                                                    THE
Continued from page 7


   The participation and feedback         broader group of participants
from industry – using a novel elec-       including registrants.”                                                             Editor-in-Chief    I   Gerry Halischuk
tronic survey machines – was posi-          Developments at the Canadian                                                      Executive Editor   I   Robert Hudson
tive, and the BCSC is acting on a         Venture Exchange made the keynote                                                   Managing Editor    I   Michelle Pickerill
number of suggestions to attract an       speaker a particularly timely choice.
even larger audience next year to a       Barbara Stymiest, president and
                                                                                      T H E R E G I S T R A N T is published and its contents are copyrighted (2001) by the
conference tentatively scheduled          CEO of the Toronto Stock                    Capital Markets Regulation Division of the British Columbia Securities Commission
for the month of June.                    Exchange, discussed the TSE                 (BCSC).
   “To address specific needs of spe-     acquisition of the CDNX and the             The BCSC is the independent self-funded government agency responsible for regulating
                                                                                      trading in securities and exchange contracts in the province of BC. The Capital Markets
cialized industry groups, such as         need for Canada to harmonize                Regulation Division registers and examines the conduct of registrants or oversees SROs
registrants, securities lawyers, and      provincial regulation in order to           who conduct those functions.
accountants, we would like to devel-      compete globally.                           Reproduction Rights: You are encouraged to circulate or copy this material unmodified
                                                                                      for your own internal or private use only.Any article or portion may be quoted with attri-
op break-out sessions at next year’s                                                  bution. Quotation without attribution is prohibited.The newsletter and its contents may
conference,” Hyndman said. “We                                                        not be sold, intact or modified, nor included in any package or product offered for sale.
hope to draw an even larger and                                                       Newsletter Services: If you would like to be added to our newsletter mailing list, please
                                                                                      contact the Secretary to the Director, Capital Markets Regulation, at 604-899-6686.
                                                                                      Letters to the Editor: Please write to the Editor-in-Chief,The Registrant, Capital Markets
                                                                                      Regulation Division, BC Securities Commission, P.O. Box10142, Pacific Centre, 701 West
       RESOURCES:                                                                     Georgia Street,Vancouver, BC,V7Y 1L2.
                                                                                      Other Legal Matters: The information published in this newsletter involves general con-
                                                                                      cepts only. None of the information should be construed as providing, suggesting or
                                                                                      offering a definitive, legal or binding opinion of the BCSC or its Capital Markets
The BC Securities Commission has a number of resources available to help              Regulation Division about the subjects or concepts involved, nor is there any legal liabil-
                                                                                      ity, warranty or responsibility implied by its publication or the subsequent use of the
you and your clients.                                                                 information. For further details or to ask questions about the concepts discussed in this
                                                                                      newsletter, registrants, including their designated compliance officers or delegates, should
                                                                                      contact the Capital Markets Regulation Division at the BCSC. For information about or
Our website address: www.bcsc.bc.ca                                                   inquiries relating to other divisions of the BCSC, please call 604-899-6500.
                                                                                      If you have a concern about a specific dealer or adviser doing business in BC, please
Brochures and related materials available include:                                    direct it to the Manager, Compliance Branch of the Capital Markets Regulation Division
                                                                                      at the BCSC.

     Getting Started *                                                                BRITISH COLUMBIA
                                                                                      SECURITIES COMMISSION
     A Primer *                                                                       Douglas M. Hyndman Chair            I
     Choosing Your Financial Advisers *                                                                           I
                                                                                      Stephen J.Wilson Executive Director

     The Prospectus: What It Is and Why You Should Read It
                                                                                      C A P I TA L M A R K E T S                                                COMPLIANCE
     Investing and the Internet: Be Alert to Signs of Fraud                           R E G U L AT I O N D I V I S I O N                                                            I
                                                                                                                                                                Steve Plummer Manager
     Mutual Funds: What You Need to Know *                                                                      I
                                                                                      Gerry Halischuk Director, Capital Markets Regulation                                                  I
                                                                                                                                                                George Coleman Sr. Compliance Officer

     Exempt Market Securities: Look Before You Leap!                                            I
                                                                                      Edith Lo Secretary to the Director                                                    I
                                                                                                                                                                Laura Bliss Compliance Officer
                                                                                                                                                                                I
                                                                                                                                                                Mark Wang Compliance Officer
     Your Investment Planning Worksheet                                               R E G I S T R AT I O N                                                                        I
                                                                                                                                                                Stacey Reddick Jr. Compliance Officer

     Characteristics of Various Types of Securities                                   Robert Hudson Manager   I                                                                         I
                                                                                                                                                                Christine Zenith Sr. Filings Administrator

                                                                                                    I
                                                                                      Meg Tassie Adviser                                                                                  I
                                                                                                                                                                Aimee Vander Vliet Filings Administrator

                                                                                                          I
                                                                                      Gayle Carlson Supervisor                                                                          I
                                                                                                                                                                Shirley Manikiam Admin. Assistant

* Available in Chinese translation.                                                                               I
                                                                                      Karin Armstrong A/Reg. Supervisor
                                                                                                                      I
                                                                                      Toni Mavrogeorge Sr. A/Reg. Admin.                                        E X A M I N AT I O N S
                                                                                                          I
                                                                                      Randy Carlson A/Reg. Administrator                                                            I
                                                                                                                                                                Michael Sorbo Manager
Dealer Compliance Officers or their assistants should contact the BCSC for                                  I
                                                                                      Kent Waterfield Reg. Administrator                                        Mahazarin Konkrawala Examiner   I
details on bulk orders.                                                                                   I
                                                                                      Norm Nielsen A/Reg. Administrator                                                     I
                                                                                                                                                                Jeff Mount Examiner
                                                                                                        I
                                                                                      Shakila Astar A/Reg. Administrator                                        Warren Newton Examiner  I
                                                                                                            I
                                                                                      Linda Halischuk A/Registration Assistant                                                  I
                                                                                                                                                                Hanif Samji Assistant Examiner




  THE REGISTRANT                 The BC Securities Commission | Phone 604-899-6500 | 1- 800-373-6393 | Fax 604-899-6506 | inquiries@bcsc.bc.ca


                                 Canada Post: Return requested and forwarding address requested.




BC Securities Commission
P.O. Box 10142, Pacific Centre
701 West Georgia Street
Vancouver BC V7Y 1L2

								
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