A Practical Approach To Enhance The Protection Of Quebec Mutual Fund Investors


The Quebec government has mandated the Autorité des marchés financiers (‘’AMF’’) to hold a public consultation on compensation for victims of financial fraud. In response, the AMF published, on December 9th, 2011, a Notice of consultation on the compensation of consumers of financial products and services in Quebec (‘’financial consumers’’)1. The mutual funds sector is the main concern because of its large size, Quebec customers of mutual fund dealers are not covered by a Canada wide compensation scheme and the industry has been the locus of major frauds in the recent past.

It is generally accepted that the first recourse of a customer who has been deprived of his financial assets because of the incompetence or malevolent actions of an employee should be to that customer’s financial firm. To ensure added protection in cases where compensation by the firm of the losses incurred by victims of errors, omissions and fraud would jeopardize the financial integrity of the firm, all leading European and North American jurisdictions require that securities and mutual fund dealers maintain fidelity insurance coverage and, as a means of last resort, have mandated the establishment of an industry investor compensation scheme to cover losses stemming from the bankruptcy of a financial services firm, whatever the cause. In North America, the surveillance and audits of the firms to ensure they comply with prudential and business conduct rules is carried-out by self-regulatory organizations (‘’SRO’’) under the oversight of a public regulatory agency. This arrangement is coherent with the fact that the financial risks of the investor compensation schemes is borne by industry, not taxpayers. It also helps shield the public regulator from the pressure of demands and judicial actions prompted by the pervasive role of the State in regulating the financial sector and its vulnerability to concerted ‘’political’’ action which, too often, are not imbued by concerns for fair and equitable treatment of all injured financial consumers.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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