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The Globe and Mail

IIROC needs enforcement tools to hold investment advisers to account

Andrew Kriegler is chief executive officer of the Investment Industry Regulatory Organization of Canada.

When someone breaches the law and is found guilty of an offence, you expect that they will have to pay the fine or do the time.

Similarly, if investment advisers break the rules and abuse the trust their clients have placed in them, they too should have to pay the penalty.

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The Investment Industry Regulatory Organization of Canada (IIROC) regulates investment dealers and their registrants across Canada in the public interest. To do our job well and protect the public, we need to have the tools necessary to vigorously and effectively enforce our rules and collect the fines imposed on individuals who have broken those rules. Unfortunately, in much of Canada, we don't have all the tools we need.

To their considerable credit, the governments of Alberta and Quebec have given us the ability to pursue wrongdoers and collect payments directly through the courts. Not surprisingly, our collection rates in these provinces, when viewed over a sustained period of time, tend to be higher than our national average. As a result, we are seeking legislative changes from other provincial governments that would permit IIROC to pursue the collection of disciplinary fines directly through the courts consistently from coast to coast.

Sadly, in most cases, the guilty parties do not pay their fines. Our overall collection rate of fines levied by disciplinary panels against individuals in 2015 nationally was a mere 13.2 per cent of the nearly $3-million ordered. This is totally unacceptable.

Across Canada, there are $28-million in uncollected fines and penalties owed by individuals, dating back to 2008. In Ontario alone, nearly $20-million remains uncollected from individuals – monies that could be used to better protect investors.

Rule-breakers should not be able to evade payment by simply ceasing to work for an IIROC-regulated firm. Nor should they be able to simply find employment in another area of financial services without potential clients and other regulators knowing what they've done.

That's why, in addition to seeking amendments to securities legislation, we've been working with other authorities to put in place formal agreements to share information and, where appropriate, trigger automatic reviews or investigations when someone with a disciplinary history applies for registration with another regulator.

For example, we signed such an agreement with Quebec's Chambre de la sécurité financière late last year and another most recently with the Financial Services Commission of Ontario. Under these agreements, each regulator will be aware of and be able to assess the fitness of those individuals applying for registration based on their previous disciplinary records.

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These types of efforts, which we are pursuing with other agencies and regulators in Canada and abroad, will better protect consumers of financial services, regardless of who regulates whom and where. Those applying for approval to provide financial services to consumers must meet the highest professional and ethical standards.

In addition to pursuing stronger enforcement powers and establishing reciprocal agreements with other regulators, we publish and update a regular unpaid fines report on IIROC's website, listing delinquent individuals who have failed to pay their fines.

Investors can also check to see if the individual they are working with at an IIROC-regulated firm has ever been disciplined by us and whether there are any conditions restricting their ability to work with clients. This information, along with background including the education and qualifications of registered advisers, can be accessed through IIROC's online adviser report.

There are approximately 28,000 individuals approved to work at IIROC-regulated firms. The vast majority of them abide by our rules and work day in and day out in their clients' interests to help them achieve their financial goals.

Investors must be confident that the firms and individuals with whom they trust their money are complying with the rules and, if those rules are broken, that there will be appropriate consequences. The existence of real consequences acts as a deterrent to individuals who may consider engaging in misconduct. Failure to mete out such consequences undermines confidence in our capital markets.

Stronger enforcement tools and a demonstrated commitment by the investment industry to do the right thing will strengthen confidence and contribute to well-functioning capital markets – all of which is good for investors, good for the industry and good for economic growth.

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As a self-regulatory organization, we do not rely on any government funding to fulfill our mandate to protect investors and support healthy capital markets across Canada. However, we rely on governments to give us the enforcement tools we need to do that job effectively. We believe that wrongdoers must be held accountable for their actions, must pay the price for their transgressions and must be seen to pay it – their trusting clients and Canada's capital markets deserve nothing less.

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