In the wake of the scandals of Norbourg, Earl Jones and Mount Real, the Autorité des marchés financiers (AMF) initiated a public consultation on December 9, 2011, regarding the compensation of victims of financial crimes. At the request of the Québec Minister of Finance and of the Québec Minister for Finance, the AMF is focusing on all aspects of the compensation of consumers who have been victims of financial fraud, in particular the role that the Fonds d'indemnisation des services financiers (Financial Services Compensation Fund) might play in this respect.

The public debate that has swirled around these high-profile matters has led to the public consultation, which is hardly surprising.

The AMF seeks answers to 22 questions which it has set out in the public consultation [available here]. The answers to these questions and comments on the public consultation generally are to be submitted to the AMF no later than February 7, 2012.

The AMF included in this public consultation a Reference Guide [available here] that discusses the consumer protection mechanisms existing in Canada and in other countries as well.

The AMF seeks comments both from consumers and the industry on a variety of issues, namely:

  • The role of compensation among various measures intended to protect consumers of financial products and services;
  • The accountability of consumers and representatives;
  • The fundamental objective of a compensation scheme;
  • The approach to be favoured with respect to consumer compensation;
  • The responsibility for managing mechanisms intended to compensate victims of financial fraud;
  • The products, representatives and conduct covered by the Financial Services Compensation Fund;
  • The funding of the Financial Services Compensation Fund and cost containment measures.

From the outset, there is every reason to believe that the AMF is not in favour of the outright discontinuance of a compensation scheme. Indeed, the Notice and Request for Comment does not require respondents to take a position on the appropriateness of such a scheme; at most, the issue of the harmonization of the Québec compensation scheme with those that exist in the rest of Canada is discussed.

However, the public consultation initiated by the AMF does go beyond the mere framework of the compensation scheme. It also broaches topics such as the purpose of compensation, the mechanics of the operation of the Financial Services Compensation Fund, costs, moral hasard, the scope of coverage, the products and registered firms that are covered, the differences between the Québec compensation scheme and those in effect in the rest of Canada, as well as the funding thereof. Owing to its more comprehensive nature, the public consultation ought to enable the Québec government to make the requisite determinations.

In light of the prior experience of the Fund with its accrued deficit of $20.1 million, especially following the compensation of the victims in the Norbourg matter, it is expected that many will comment, in particular, on the high costs of the compensation scheme. In addition, others will no doubt issue a reminder that the great majority of the 9,200 investors in the Norbourg matter did not qualify for any compensation from the Fund.

There is no doubt that this social debate, which has been going on for quite some time now, will once again give rise to passionate discussions, especially since it is set against the backdrop of the current international financial crisis in the context of which financial products are often singled out as the root of the problem.

The Notice and Request for Comment already provides for the possibility of the AMF meeting with some of the persons or groups that may respond.

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