British Columbia’s securities regulator becomes Canada’s first provincial watchdog to impose penalties for less serious violations of investment market rules without holding a hearing.
The British Columbia Securities Commission launched a new enforcement power Wednesday that will allow it to issue a maximum penalty of $100,000 per violation for individuals, and $500,000 per violation for entities such as companies, for less serious contraventions of regulations.
The individual or company will be allowed to dispute findings of violations or penalties, and the BCSC’s executive director will consider their challenge.
BCSC enforcement director Doug Muir says the new power, known as the Administrative Penalties Imposed by Notice (APIN), is the first of its kind in Canada and one of several new powers given to the BCSC in 2020 through amendments to the province’s securities act.
“We are grateful to have this tool because up until now there has been this gap where some of the misconduct warrants something more than a lighter touch but doesn’t justify a full-blown investigation and hearing,” Mr. Muir said in an interview. “We’re hoping that when we start to use this tool, it will generate the deterrence and be able to correct some of this behaviour on these types of misconduct.”
Since 2020, the BCSC has introduced its new enforcement powers gradually as it developed procedures to implement each one. In 2021, the regulator introduced the authority to block the issuance or renewal of drivers’ licences to people who have been punished for financial misconduct and have not fully paid their fines to the regulator.
The introduction of APIN follows years of Canadian securities regulators facing criticism for having high levels of unpaid fines. Often the provinces struggle to collect fines – because an individual or entity might have moved funds to an offshore location, may lack the money to pay the fines, or is going through bankruptcy proceedings.
In B.C., for example, there is about $554-million in outstanding fines. Approximately, $302-million, or 55 per cent, of those fines will be difficult or impossible to collect owing to bankruptcy or death, or because a debtor is in jail or subject to a court-order restitution, Mr. Muir said.
APIN will not be used for serious misconduct that is prohibited by B.C.’s Securities Act. When misconduct requires a higher penalty or additional orders – such as bans, restrictions on market participants or repayment of illicit proceeds – the BCSC said it will continue to proceed through a hearing with a panel of commissioners. (For violations that are adjudicated through a panel hearing, the maximum penalty is typically $1-million per violation.)
Examples of less serious violations include a company not filing required financial documents, or suitability issues when selling investments to clients.
Until the introduction of APIN, the BCSC had to rely on less stringent methods of enforcement, including sending inquiry letters or caution letters; adding a person or company to its investment caution list; issuing a halt trade order, cease trade order or investor alert; or suspending, revoking or imposing conditions on someone’s registration.
“A lot of these violations are important and, in some instances, it could involve harm to investors, but not always,” BCSC executive director Peter Brady said in an interview. “They don’t necessarily require a time out – such as a ban from being a director or an officer, or a ban from being a registered adviser. However, where there’s non-compliance, we need something more than a warning or conditions on your registration.”
Now, if BCSC staff detect a violation, they may submit a report to the executive director describing the alleged violation and recommend a penalty. If the executive director believes a violation has occurred and a penalty is warranted, a written notice will be delivered to the person, or company. If a penalty is imposed, it will be made public.
The amount of the penalty will depend on individual circumstances, the BCSC said, but the executive director will consider a number of factors such as the person’s past conduct, the seriousness of the conduct, whether there are mitigating factors, and the need to deter those who participate in the capital markets from engaging in inappropriate conduct.
Unlike some other regulatory penalties that have been hard to collect, Mr. Brady said APIN is expected to have a much higher success rate with repayment.
“We are using this tool for people that are actually in the business – legitimate public companies and legitimate registered advisers,” Mr. Brady said. “It’s not to say we won’t use it for other individuals who are on the fringe. There could be a basis for doing that. But if a public company hasn’t done a required filing – and a penalty is warranted – they’re going to have to pay the penalty.”