CSA maps out higher-tech surveillance plan

CSA maps out higher-tech surveillance plan


Securities watchdogs in Canada say they are going even higher-tech in their pursuit of misconduct such as insider trading and market manipulation.

The Canadian Securities Administrators, an umbrella organization covering the country’s provincial and territorial regulators, released an annual enforcement report on Monday that noted the group is working on updating the “proprietary marketplace surveillance technology” it uses in its investigations.

“The pace of change, the borderless nature of business and the techniques available to those who wish to undermine our systems are now moving at lightning speed in our web 4.0 world,” Louis Morisset, chair of the CSA and president and CEO of Quebec’s Autorité des marchés financiers, said in a message in the report. “These changes push our enforcement work into situations and models we’ve not seen before and that are more complex than ever.”

According to the report, the new Market Analysis Platform, or MAP, will provide CSA members with “advanced surveillance capabilities designed to assess, investigate and explain potential market abuse cases.” In an interview, Morisset said the platform would be aided to some extent by artificial intelligence.

The MAP system will also help “identify individuals possibly acting together, or groups of securities that may be the focus of manipulation” and “access enhanced research into market behaviour, which can support data-driven policy decision-making,” the report said.

“Utilizing big data effectively is critical to the type of investigations conducted across the CSA,” said a blurb attributed to Jeff Kehoe, director of enforcement at the Ontario Securities Commission, that was included in the report.

The updates followed a year in which regulators had to address several tech-related risks faced by investors.

For instance, the CSA’s report said it reached out to “a number of companies,” such as Alphabet Inc.’s Google, Apple Inc. and Facebook Inc., “to make it harder for fraudsters to access the digital channels and advertising that can lure Canadians into making certain fraudulent investments.”

The group also said that its members had been working with Visa Inc. and Mastercard Inc. “to help prevent fraudsters from accessing those payment systems for binary options transactions.”

Binary options are similar to a quick “bet” on the performance of assets, like commodities or stocks, the CSA said. Over the past year, however, they were also “one of the fastest-growing sources of investor fraud in Canada,” according to the CSA report.

Often, it said, no actual trading takes place “and the transaction takes place for the sole purpose of stealing money.”

In response to the threat, CSA members launched a binary options task force and announced a ban on offering, selling or trading binary options with Canadians when the options have terms shorter than 30 days.

The year in enforcement included a focus on cryptocurrencies as well, including the creation of an investment fraud task force and “coordination with global digital platforms to ban advertising of cryptocurrencies and (initial coin offerings),” the CSA report said.

“I think this year we really wanted to showcase, to a certain extent, how innovative we are in our enforcement approach,” Morisset said of the report.

The securities watchdogs levelled about $69.4 million in fines and penalties last year as well, the report showed. For the group, the number was an increase over the 2016 total of about $62.1 million, but down from $138.3 million in a banner 2015.

More than half of the fines and administrative penalties imposed by the regulators were tied to allegations of illegal distribution, market manipulation and fraud, the CSA report said.

Additionally, courts handed down 47 years of jail time in both criminal and quasi-criminal cases in 2017, compared to 39 in the previous year, the CSA said.

“We’re pushing as hard as we can to get prison when the facts justify it,” Morisset said.

Financial Post

 

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