The Enforcement of Financial Market Crimes: A Comparative Case Study of Canada and the United Kingdom

by Anita Indira Anand

Strong enforcement of the law governing financial markets improves investment, reduces information asymmetries among corporations and investors, and prevents adverse selection. It has proven to be a deterrent, signaling to potential wrongdoers that criminal activity has serious consequences. It can also provide victims of crime with compensation for their losses. Despite these benefits, developed market economies struggle to develop comprehensive systems which allow for the successful prosecution of financial crimes. Indeed, the law of financial market crime is perhaps the most poorly-enforced branch of criminal law.

While there is no universally-accepted definition of “financial market crime,” the term typically refers to “any non-violent crime that generally results in a financial loss.”[1] In my comparative analysis of the enforcement of financial market crimes in Canada and the United Kingdom (UK), I argue that financial market crimes have low enforcement rates for a multiplicity of reasons common to both jurisdictions. To begin, financial market crimes have historically been relatively low priority for law enforcement officials who are required to devote increasing resources to violent crimes. In addition, and perhaps relatedly, law enforcement infrastructure lacks financial resources, which undermines the investigation and prosecution of financial market crime and fraud cases. Furthermore, technology, especially the prevalence of social media, has allowed new types of fraud to develop, with insufficient tools and financial resources to deal with them. Finally, past treatment of financial market criminals as pillars of the community who have merely had a fall from grace has weakened public perceptions of the harm caused by these crimes.

In both the UK and Canada, there is a lack of coordination among enforcement agencies when these crimes are investigated and prosecuted. While market regulation is more centralized in the UK, both countries rely on multiple agencies – and require those agencies to work together for the system to properly function. Theoretically, this integrated approach to financial market crime enforcement should work. Yet, in both countries, problems have arisen as regulators struggle to determine which agency (or agencies) should be responsible for tackling a specific financial crime, and handle issues of information sharing between national and local law enforcement teams. This lack of proper coordination has hampered officials in both countries as they attempt to prosecute and prevent financial market crime. In light of these issues, I propose three main reforms.

First, and while it may sound trite, greater financial resources should be dedicated to financial market criminal enforcement. Studies suggest that allocating public resources to the enforcement of financial market crimes has a positive effect on an economy’s activity in this sector. Investing in enforcement not only allows for a system to better identify and prosecute wrongdoers, but also attracts investors by signalling a commitment to market integrity. Additionally, an increase in funding would allow agencies to invest in proactive enforcement measures by conducting better market oversight.  

Second, both jurisdictions should introduce and embrace principles-based regulation in relation to financial market crime. Regulators in both countries are hamstrung by existing regulations, which are currently based around a collection of so-called “bright-line rules”. These rules set out clearly defined standards and leave little room for variation or judicial interpretation. While this approach may work for more conventional crimes, in constantly evolving and unpredictable areas of law like financial market crime, bright-line rules create legal loopholes, allowing wrongdoers to skirt the justice system.[2] In contrast, principles-based regulation consists of guiding principles to be considered when making enforcement decisions. The goal of adopting principles-based regulation is to provide regulators and courts with a degree of flexibility, which combats the key failings associated with conventional rules-based systems.

Finally, inter-agency coordination should be better facilitated. Both Canada and the UK have moved toward allowing prosecutors to enter into “deferred prosecution agreements” (DPAs) with offending corporations. A DPA combines traditional financial market crime sanctions with mandated changes to an organization’s structure (e.g. required education and training on ethics and best practices in addition to the creation of new or improved compliance programs). Organizational changes made under a DPA not only allow corporations to better understand the consequences of financial crime, but create systems within corporations that make it more difficult for financial market crime to occur and more obvious to detect. Though not without flaws, these DPAs represent a step in the right direction as they allow more expeditious prosecution of the accused corporation without victimizing the employees, shareholders, creditors among other stakeholders. In addition to robust DPA procedures, other mechanisms should be implemented/strengthened through regulatory reform. Whistleblowing incentives encourage key witnesses to step forward, and internal controls such as hotlines and ethics training improve prosecution rates and significantly curtail the prevalence of fraud.

The problems with the enforcement of financial market crimes are not exclusively legal and cannot be solved through legal reform alone. Nevertheless, reform of the law is essential in both jurisdictions, recognizing the inherent complexity in the task given the institutional composition underpinning enforcement regimes in each country.

The above post is adapted from a forthcoming chapter in C. Alexander and D. Cumming eds., Handbook of Financial Market Manipulation, Misconduct and Fraud (John Wiley & Sons, 2019).   


[1] IMF Monetary and Exchange Affairs Department, “Financial System Abuse, Financial Crime and Money Laundering – Background Paper” (2001) International Monetary Fund Paper

[2] Cristie Ford, “Principles-Based Securities Regulation in the Wake of the Global Financial Crisis” (2010) 55:2 McGill L J 257. This use of legal loopholes is frequently seen in cases of wolf pack behaviour, where networks of parallel-minded shareholders work together to effect change in a corporation while circumventing the disclosure rules typically applied to groups of shareholders acting together. See, for example, Hallwood Realty Partners LP v Gotham Partners, LP, 286 F.3d 613 (2d Cir 2002), where three shareholders were able to avoid constituting a group under s.13(d) of the Securities Exchange Act, despite the fact that one of the shareholders “was a well-known raider and all three discussed amongst themselves how to improve the value of the target company.” See also Anita Anand & Andrew Mihalik, “Coordination and Monitoring in Changes of Control: The Controversial Role of Wolf Packs in Capital Markets” (2017) 54:2 Osgoode Hall LJ 377 at 377.

Anita Indira Anand is the J.R. Kimber Chair in Investor Protection and Corporate Governance and a Professor of Law at the University of Toronto. She served as Associate Dean from 2007-2009 and has since served as Academic Director for the Centre for the Legal Profession and Program on Ethics in Law and Business. She is a Senior Fellow and member of the Governing Board, Massey College and is cross-appointed to the Rotman School of Management and the School of Public Policy and Governance and serves as the Director of Policy and Research at the Capital Markets Institute.


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