Advocis to fight legal precedent

If you’re registered in multiple jurisdictions and charged with violating securities law, you could spend a lot of time defending yourself.

That’s because securities regulators have reciprocal agreements — they can effectively duplicate enforcement orders originating in other jurisdictions.

Read: Five reasons for a national regulator

But the statute of limitations for misconduct in most provinces is six years. If a regulator piggybacks off another’s order, when does the six-year clock start: at the date of the alleged misconduct, or after the first regulator lays down its judgment?

Advocis has been granted intervenor status in such a case before the Supreme Court of Canada: McLean v. British Columbia Securities Commission.

Read: Supreme Court hears interest deductibility case

The case involves Patricia McLean, a B.C. registrant, who reached a settlement agreement with the OSC in 2008 based on misconduct that occurred in 2001. The OSC had commenced proceedings in 2005 — well within the six-year window.

In 2010, almost nine years after the underlying misconduct, but only two years after the OSC agreement, the British Columbia Securities Commission (BCSC) commenced its own proceedings for the same 2001 misconduct, relying on details disclosed in the OSC agreement.

The BCSC argues the limitation clock was reset in 2008 with the reaching of the settlement agreement, which would put the BCSC’s enforcement action within the six-year window.

Read: Reactive regulatory reforms harm markets: BCSC

McLean argued that any enforcement action must be based on the actual misconduct in 2001, and therefore the BCSC’s proceeding was beyond the limitation period. After losing at the British Columbia Court of Appeal, McLean appealed to the Supreme Court.

“The purpose of limitation periods is to give certainty to potential defendants so that they do not face an unending threat of litigation,” says Advocis. “If the BCSC’s interpretation is upheld, an advisor could be under a nearly life-long threat for a single act of misconduct, as 13 provincial and territorial regulators would each have up to six years to bring related charges against an advisor in a cascading chain. This exposure could also result in significant increases to E&O insurance premiums.”

Nearly all provincial securities acts contain provisions that are similar to the ones at issue in British Columbia.

For analysis on what this means for you, look for our story in April’s Advisor’s Edge Report.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.