Dear Chair and members of the committee, thank you very much for the invitation to be with you and to contribute to your important study regarding financial fraud and scams in Canada.
My name is Sarah Corrigall-Brown. I'm the general counsel of the B.C. Securities Commission. I'm joining you virtually today from Vancouver.
The scourge of financial fraud has been around for a long time, but in the past decade and especially since the pandemic, it has spread and intensified like a mutated virus that is many times more contagious and virulent than ever before. We are very pleased to see the actions the federal government is taking to address fraud, including the government's intention to launch a new financial crimes agency.
The B.C. Securities Commission and Canada's securities regulators, which keep watch over the country's investment markets and contribute to the integrity of Canada's financial system, have been on the front lines of this battle. Securities regulators have a mandate to protect investors from fraudulent, manipulative and misleading practices. We see the exponential growth of financial fraud as one of the greatest threats to investors today.
Prevention and detection of fraud is essential, but combatting fraud also requires strong and effective enforcement. Today, I want to talk to you about one aspect of Canadian law that is undermining our enforcement efforts.
When fraudsters are located in Canada, securities regulators like the BCSC take formal action through administrative tribunal proceedings. These tribunals, which are composed of recognized experts in securities law and bound by rules of procedural fairness, have the power to exclude lawbreakers from the investment market and to impose financial penalties on them. Those penalties sometimes reach into the millions. They are key to deterring further misconduct by the lawbreakers themselves, but they also deter misconduct by others who might be tempted to defraud unsuspecting investors. For those penalties to have deterrent power, however, it is not enough for our tribunals to hand down legal orders. We need to be able to collect sanctions; otherwise, they are penalties in name only.
There are many obstacles that lawbreakers can exploit to block our collection efforts. One of them is a federal law, which is the Bankruptcy and Insolvency Act, or the BIA. The BIA is designed to enable the financial rehabilitation of honest but unfortunate debtors and give them a fresh start by releasing them from their debts upon discharge from bankruptcy. The BIA does this well, and Canada's securities regulators wholeheartedly support that objective.
However, the BIA treats the penalties imposed by securities regulators for egregious misconduct the same as consumer debt. This means people who have been penalized for significant market misconduct can have their penalties erased through the bankruptcy process. These are people whose debts result from their own predatory behaviour toward other Canadians and who are seeking to avoid paying those debts. When they do this, it undermines Canadian securities regulators' efforts to enforce the law and protect investors from fraud.
To pick one example from Alberta, Saileshwar Narayan admitted to committing fraud in mortgage financial schemes in which investors lost $4 million. One month after the Alberta Securities Commission ordered him to pay a $300,000 administrative penalty, he entered bankruptcy and was discharged from bankruptcy 10 months later. The penalty was erased, and the ASC collected only $6,300 toward Narayan's debt.
We believe examples like this undermine confidence in the ability of the Canadian regulatory regime to hold fraudsters accountable for their actions. This undermines the foundation of honesty and fairness that we all expect of Canada's markets. We also believe they fly in the face of the federal government's laudable crackdown on financial crime. There is, however, a fix.
The BIA has a list of debts that Parliament has decided should not be extinguished in a bankruptcy. We and all other Canadian securities regulators ask that Parliament add to this list the financial sanctions imposed by Canadian securities regulators for the most egregious types of market misconduct: fraud, market manipulation and misrepresentation.
We have spoken about this request with ISED officials and have made submissions to the House finance committee and the Department of Finance. The Government of B.C. and all securities regulators across Canada support this request. It is also supported by a range of organizations, including the investor advocacy group FAIR Canada, the Consumers Council of Canada, CFA Societies Canada and the Canadian Association of Retired Persons.
Making this change to the BIA would have no impact on the honest but unfortunate debtors that the BIA aims to serve, and it would impose no additional burden on the bankruptcy courts that ably carry out the BIA's crucial mission. It would reconcile provincial securities law and federal bankruptcy law that, in this particular respect, are working at cross-purposes.
It would also serve a more practical imperative. As Canada seeks to become as economically competitive and resilient as possible, we must ensure that our market is seen as honest and fair, and therefore a safe place to invest. A crucial component of that effort is strong and effective enforcement to hold individuals accountable when they harm our market through fraud, market manipulation and misrepresentation.
I ask that you consider our proposed amendment to the BIA as a meaningful way to support strong enforcement and enhance the fight against financial fraud in Canada.
Thank you again for your time today. I welcome any questions.