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.” 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. Continue reading