Canada’s securities regulator is recommending new enforcement rules for the investment community that would resolve certain cases more quickly and impose a standard fine for minor violations where investors have not been harmed.
The Investment Industry Regulatory Organization of Canada – which oversees approximately 160 investment dealers and their investment advisers – is proposing a rule change that will offer two alternative forms of discipline in the way individuals and firms are disciplined for breaking IIROC’s rules.
The proposals – which are open for public comment – include a minor-contravention program where individual advisers could admit to wrongdoing and pay a standard $5,000; and an early-resolution offer for investment firms that will give regulators more “flexibility" in addressing rule breaches, depending upon their seriousness. This should result in speedier resolutions of complaints against financial services companies, helping to keep the current backlog of unpaid fines – currently in the millions of dollars – from growing.
“These changes would provide alternatives to IIROC’s formal disciplinary hearing panel process, allowing hearings to focus on matters that are more serious or harmful to investors – ultimately making IIROC’s discipline more timely and proportionate to the offences,” Elsa Renzella, senior vice-president of registration and enforcement at IIROC, said in a statement.
IIROC investigates and prosecutes firms and investment advisers who breach its rules. Major infractions could include misappropriating funds from clients, falsely endorsing client signatures or making unsuitable recommendations to investors – which are commonly seniors and vulnerable investors who often suffer significant financial losses. None of these would be subject to the minor-contravention program.
Currently, disciplinary actions are resolved in a settlement or a contested hearing. Instead, the two proposed programs would give IIROC the option to address matters more quickly and efficiently, in a way that is more tailored to the nature of the misconduct while still providing a strong reminder to individuals and firms that they must meet regulatory requirements.
If approved, a minor-contravention program would impose fines of $5,000 against individuals for minor violations where investors have not been harmed and would not require a full contested hearing. Advisers who admit to the minor violation would not have the infraction reside on his or her formal disciplinary record, and the public notice of the misconduct would remain anonymous.
The program will “provide a more efficient means to resolve cases that cannot be adequately addressed by way of a [warning letter] but do not warrant a formal disciplinary proceeding,” IIROC said in a news release.
Investment firms would not be eligible for the minor-contravention program.
In the proposed early-resolution offer, investment firms and advisers would settle cases earlier in the enforcement process. Those who choose to resolve a case through the early-resolution offer will be granted a reduction of 30 per cent on fines IIROC staff would otherwise seek in a settlement, and would not require a full hearing.
The offer would only be valid if sufficient facts of a case are known and certain conditions are present, IIROC says. The offer would address the violation more quickly by reducing the time required to complete a case, and encourage firms to take corrective action and compensate clients affected.
“We expect these programs would contribute to enhanced efficiencies while providing fair, effective and timely enforcement that protects investors from coast to coast,” Ms. Renzella said.
IIROC first proposed these rule changes in February, 2018, after a review of enforcement programs adopted by other regulatory bodies in Canada and elsewhere.
Comments on the proposed changes are open until July 24.