MONTREAL – The head of Quebec’s financial regulator says the current low-interest environment causes an increase in fraud risk as investors search for higher margins.
“Ten years ago, scammers could attract people by promising 20 percent interest, for instance. In today’s world with a very low rate of interest, you can be promised three per cent and it could be a scam,”?said Authorit des marchs financier CEO Louis Morisset throughout an interview with the Financial Post on the sidelines from the?International Economic Forum from the Americas in Montreal on Monday.
“The quest for yield is there. People are looking for ways to invest and also the risks are higher.”
Ten years back 9,200 Quebec investors lost what is now estimated at a lot more than $100 million within the Norbourg Financial Group scandal. Vincent Lacroix diverted money from a trust fund for personal interests within the biggest financial scandal the province has faced and something of the largest in Canadian history.
Frankly, there’s nothing we can do to prevent it
Morisset says that the AMF staff have tripled in dimensions since then, growing from 47 employees in 2004 to in excess of 150 today.
In 2010, the organization launched a cyber risk unit, a team that flags potential online fraud in Quebec.
Recently, the AMF put out a warning against exchanging binary options after seeing suspicious activity emerging in the province, targeting investors looking for higher-yield investments.
However, Morisset says that with only five full-time staff handling daily cyber attacks, it’s mostly up to businesses themselves to protect against the risk.
“Frankly, there’s nothing we can do to prevent it,” he said.
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“We can not tell them what they have to do, but we have to ensure they are focusing on this risk and they are buying the technology and also the detection.”
Morisset, 42, says technology is pushing the need for global co-operation between regulators, and also the?AMF is co-ordinating using the International Organization of Securities Commission on cyber risk and cyber resilience.
Unlike other provinces, Quebec’s AMF oversees the whole financial sector, including business,?insurance and banking regulations, in addition to working with other authorities on criminal investigations.
“In Ontario, there are basically three organizations doing our job,” he said.
Last month, the AMF announced that Quebec and 6 other provinces will allow online equity crowdfunding for small businesses.
The measures include rules limiting the maximum individual investment to $1,500, and limiting the most a startup can collect at $500,000 annually.
The search for yield can there be. People are researching ways to invest and the risks are higher
“When you do this you have to balance the issues surrounding the raising of capital for smaller businesses and also the issue all around the protection of investors,” said Morisset.
He said crowdfunding is definitely an opportunity to fill a “gap” between small startup financing and venture capital.
“When you start a business, obviously you ask for the aid of your family and friends. You receive love money,” said Morisset. “We think it is important to help tiny businesses to emerge.”
In fall 2015, the AMF will work with other provinces, including Ontario, to begin a crowdfunding regulation system that will include publicly-traded companies.