A woman leaves a Bank of Nova Scotia (Scotiabank) branch in Ottawa, Ontario, Canada, May 31, 2016.Chris Wattie/Reuters
Three Bank of Nova Scotia dealers will pay a combined $20-million to compensate current and former clients who overpaid to hold various types of investments.
On Friday, the Ontario Securities Commission heard and approved a no-contest settlement agreement with Scotia Capital Inc., Scotia Securities Inc. and Holliswealth Advisory Services Inc. The OSC said that while these dealers' internal controls and supervisory systems were inadequate, it found no evidence of dishonest conduct.
The fee overcharges, which date as far back as 2009 and went undetected for years, affected roughly 45,703 client accounts that were invested in various mutual funds, exchange-traded funds and structured products.
"Based on the evidence that staff reviewed, we determined that the Scotia dealers failed to establish, maintain and apply procedures and to establish controls and supervision," Yvonne Chisholm, a senior litigator for the OSC, said at the Friday hearing.
She added that the dealers "provided prompt, detailed and candid co-operation" during the investigation.
The Scotiabank dealers self-reported these issues to the regulator starting in early 2015 and, as a part of the settlement, they did not admit to or deny the allegations. The bank also conducted a review of its other businesses in Canada and found no further issues.
"We regret any inconvenience this has caused, and will immediately begin to notify affected current and former clients and appropriately compensate them," Scotiabank spokesman Rick Roth said.
"We have also taken corrective action to implement additional controls, reporting and procedures to prevent these matters from occurring in the future."
The most sizable case of mispricing affected 30,218 client accounts that paid both an account fee and a trailer fee – a type of commission paid to advisers for keeping someone invested in a certain fund – for certain structured products. These clients indirectly paid too much, the regulator said, and will receive more than $10-million in compensation.
Another instance of mispricing of fees occurred when 12,751 clients were not advised that they had amassed a large enough portfolio to meet the threshold necessary to purchase a class of mutual funds with a lower management expense ratio (MER). As a result, the regulator said, these people indirectly paid more in fees than they should have and will receive roughly $8.9-million in compensation.
The Scotiabank dealers have made a voluntary payment of $850,000 to the OSC, of which $800,000 is earmarked for investor education and $50,000 is to cover the regulator's costs of the investigation.
"Approval of this settlement agreement will remind other market participants about the importance that this commission places on self-reporting, on compensation and remediation to investors and on establishing and on maintaining internal compliance systems that operate appropriately," Ms. Chisholm said.