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40 www.canadianlawyermag.com OPINION BACK PAGE Investor protection is good business COVID-19 laid bare the challenges faced by retail investors in capital markets and the need for further protections GAMESTOP. CRYPTOCURRENCY SCAMS. COVID-related frauds. These are just some of the many attention-grabbing headlines that have made the papers in the past year. To me, all three of these stories have been about investor protection. Since the onset of COVID-19, the Ontario Securities Commission and other securities regulators across the country have issued multiple alerts about COVID-19 related scams. The Ombudsman for Banking Services and Investments saw close to a 50 per cent increase in investment-related inquiries concerning registered invest- ment firms. In the same vein, the Investor Protection Clinic at Osgoode has witnessed a tripling of client intakes. Many of the clin- ic's files involve online fraudsters who have absconded with client funds. Many other files involve registered investment firms and advisors who have put clients into unsuit- able investments with too much leverage, too much risk or lack of liquidity. The pandemic has created a perfect storm of market volatility, unemployment and social isolation that has cut retail investors from trusted financial information sources. Many retail investors are missing out on more frequent check-ins from their profes- sional advisors or guidance from their fami- lies in the case of seniors. This situation has left many retail investors vulnerable to bad actors who peddle so-called high-return, zero-risk investments. Ever the ones to take advantage of misfortune, fraudsters and scammers have targeted vulnerable people with various COVID-related scams. As a result, people have lost their life savings and that crucial nest egg. And so, the long line of people seeking financial recovery has grown. The broader context The days of the defined-benefit pension plan from a lifelong employer are gone for the most part. Now, employers expect people to save for their retirement. Just as more people need to invest, though, investment options have become increasingly complex. Complexity can increase risk, and many ordinary people find their money in invest- ments that are just not suitable for them. The rise of complicated and incredibly speculative products like cryptocurrency has only made the issue worse. Meanwhile, "Reddit stocks" like GameStop are casting more uncertainty into the mix. At the same time, self-directed trading platforms are sending notifications to investors with deals and promotions to incentivize trading. Retail investors are being pushed into trading, which is not necessarily appropriate for everyone. These developments, grounded in behavioural economics, should give govern- ments and regulators a moment of pause. More investor education? Yes, investor education helps. The outreach and engagement efforts of securities regu- lators and self-regulatory bodies such as the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada are noteworthy. The OSC's Investor Office, for example, offers multi-lingual written resources and an interactive scam-spotter tool and meets with ordinary investors across the province. But investor education on its own is not enough. The bad actors are moving fast and finding new ways to take advantage of vulnerable investors. Technology is exasper- ating this. The problem also goes beyond fraudsters who refuse to operate within the registra- tion regime. We need to look carefully within the registered system of advisors to ensure accessible, fair protections and processes for retail investors. We need to ensure well-de- signed rules from the get-go. Regulators must engage in proactive and responsive compliance efforts. Registered firms should ensure internal accountability from within. When the circumstances warrant it, we need proportionate and robust regulatory enforcement. We also need accessible paths to financial recovery. Yet more rules are not always the answer. Reducing unnecessary red tape is beneficial for the capital markets. But a base level of investor protection rules, backed by strong compliance and enforcement, is a critical contributor to the health of the markets. A strong focus on investor protection increases investor confidence and the integrity and fairness of the markets. Where to from here? The bottom line is that investor protection is at the core of what is good for investors, capital markets and the economy. Governments and regulators should double down on investor protection reforms, and with the release of Ontario's draft Capital Markets Act, commentators should keep investor considerations top of mind when responding. After all, investor protec- tion and strong markets go hand in hand, and as we emerge from the pandemic, the importance of both cannot be overstated. Poonam Puri is a professor at Osgoode Hall Law School specializing in corporate governance, corporate law and securities regulation. She is co-founder and director of Osgoode's Investor Protection Clinic.