Views on improving the integrity of global capital markets
17 January 2013

“Naming and Shaming”: Canada’s Move to Call out Bad Actors Sets Investment Industry Example


Randal William Harding and Octagon Capital Corporation did bad things. Don’t take my word for it, have a look at the announcement of sanctions against Mr. Harding and notice of the failure of Octagon to adopt an independent ombudsman’s recommendations for the firm to compensate Mr. Harding’s former clients.

Outside of the judicial system, we’re not so used to seeing reports of bad conduct in which firms and individuals are named. In many jurisdictions, fear of libel causes at best a healthy regard for the facts of each situation and at worst a knee-jerk reaction to avoid assigning blame by name for risk of being entangled in legal actions. Given that investment management depends on a foundation of trust, practitioner reputations are indeed valuable and deserving of protection.

But to the extent that the formal regulatory and legal systems are not wholly adequate to govern the conduct of those in the capital markets, self-regulatory initiatives and voluntary standards of conduct will inevitably be a feature of the investment management marketplace. Without the real penalties associated with being on the losing end of a lawsuit, the incentives for market participants to abide by voluntary codes of conduct or standards of practice may boil down to their reputational assets. Such asset values are enhanced by claims of compliance, with little downside of impairment of the value of reputation absent a mechanism for informing the market of failures to comply.

It is refreshing, then, to observe a more symmetrical risk/reward proposition in Canada. The Ombudsman for Banking Services and Investments (OBSI) is a voluntary, independent dispute resolution service designed to mediate quarrels between banks and investment dealers and their clients, when direct negotiations to resolve issues have failed. A mechanism like OBSI is a welcome alternative to the expense and complexity of legal resolutions of disputes. But, as is clear from OBSI’s website, some firms feel no obligation to adopt OBSI’s recommendations, leaving “naming and shaming” as a recourse.

Our profession could do with quite a bit more of this practice, whereby we don’t shrug and wait for regulators or the media to call out the bad actors and bad practices in our midst. With the caveat that paying attention to the facts of each situation is vital, especially in jurisdictions with strong protections against libel, we all have many more megaphones at our disposal these days thanks to the internet and social media. Indeed, CFA Institute has a rigorous, disciplined process to investigate allegations of breaches of the Code of Ethics and Standards of Professional Conduct that each charterholder agrees to abide by, with potential penalties including public sanction by name.

Maybe we’ll never be so effective at pointing out bad behavior that we’ll be able to warn off unsuspecting investors before they fall prey to the unscrupulous. But for the sake of justifying trust in markets and market participants, investors need to see us standing up, both for what’s right and against what’s wrong.

About the Author(s)
Bob Dannhauser, CFA

Bob Dannhauser, CFA, was the head of global private wealth management at CFA Institute.

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