A regulatory panel has ordered TD Waterhouse Canada Inc. to pay a $4-million fine for disclosure errors in the quarterly statements of 175,000 client accounts, raising concerns about “possible systemic weakness” in the investment firm’s governance systems.
A panel of the Investment Industry Regulatory Organization of Canada (IIROC) imposed the penalty after ruling that the company refused to bring its client disclosures in line with rules implemented in 2016. The failure affected 8 per cent of TD Waterhouse’s client accounts from 2016 to mid-2017, the ruling states.
IIROC is a self-regulatory organization that monitors Canada’s investment dealers and traders, and conducts surveillance of the activity of the capital markets. TD Waterhouse did not respond to an e-mailed request for comment.
The rules TD Waterhouse declined to follow were part of sweeping reforms the industry brought into effect in 2016 to improve disclosure about the actual amount paid by clients for their investments. Such disclosures would include a “book cost” that reflected the purchase price of investment products, as well as any transaction charges related to the purchase.
The IIROC panel found that, although TD Waterhouse was capable of implementing the changes by the start of 2016, in the spring of 2015 the company identified what it considered to be “potential litigation risks and client experience issues.” The ruling does not specify what those risks or issues were.
What ensued, the panel found, was a series of decisions at multiple levels to not comply with the new rules in about 8 per cent of its client accounts. This decision to not comply was also taken to the firm’s board of directors, the ruling found.
As a result, more than 175,000 clients received statements that incorrectly reported their positions as “not determinable” when that information was, in fact, available. “A failure of such magnitude is not, by any measure, a minor transgression,” the panel ruled.
The panel also highlighted TD Waterhouse’s prominence in the industry. “The fact that a premier financial institution acted in such a manner provides extremely poor leadership for the other members of IIROC,” the ruling states.
The IIROC panel criticized the company for saying it intended to comply but was mulling over a possible alternative form of disclosure it felt would be even more advantageous for clients’ tax reporting. However, this alternative reporting method was later, in the words of the panel, “simply forgotten” – a contention it found difficult to accept.
IIROC did not learn of the non-compliance until a TD Waterhouse client alerted the regulator in 2017, the ruling states.
Whether TD Waterhouse forgot, or whether this was a deliberate decision to skirt the rules, “the failures should give rise to concerns about possible systemic weakness in the governance systems of” TD Waterhouse, the panel ruled. “Obviously, matters relating to regulatory compliance are of the highest importance for a member of a self‐regulatory organization and it should be impossible for them to have been simply forgotten”