The SRO is on track to in­crease reg­u­la­tory sanc­tions this year.

The SRO is bet­ter po­si­tioned to col­lect the sanc­tions it levies against in­di­vid­u­als in On­tario: It now can en­force its dis­ci­plinary or­ders in court

Investment Executive - - FRONT PAGE - BY JAMES L ANGTON

boost­ing en­force­ment is a peren­nial pri­or­ity for se­cu­ri­ties reg­u­la­tors, and the In­vest­ment In­dus­try Reg­u­la­tory Or­ga­ni­za­tion of Canada (IIROC) is on track to im­prove on last year’s per­for­mance.

IIROC, a self-reg­u­la­tory or­ga­ni­za­tion (SRO), was on pace to levy more dis­ci­plinary sanc­tions against in­di­vid­u­als through the nine months ended Sept. 30 than it did in all of 2016. In fact, IIROC has more than dou­bled the to­tal dis­ci­plinary sanc­tions in­volv­ing firms in the first nine months of this year than it did all last year.

The SRO has ren­dered dis­ci­plinary de­ci­sions against seven firms, hand­ing out more than $1 mil­lion i n combined sanc­tions — in­clud­ing $830,000 in fines, al­most $80,000 in costs and $100,000 in dis­gorge­ment — as of Sept. 30 this year. In com­par­i­son, IIROC dis­ci­plined six firms, im­pos­ing $425,000 in to­tal mone­tary sanc­tions, in all of 2016.

This year’s en­force­ment ac­tiv­ity against firms also in­cludes a per­ma­nent sus­pen­sion (af­ter an in­tro­duc­ing bro­ker fell into cap­i­tal de­fi­ciency) and an un­usual dis­gorge­ment or­der re­quir­ing an­other firm to do­nate to char­ity money col­lected from an em­ployee.

The lat­ter or­der stems from a set­tle­ment with Sco­tia Cap­i­tal Inc. in July for fail­ure to su­per­vise prop­erly a cou­ple of ad­vi­sors who em­ployed an un­suit­able, high­risk trad­ing strat­egy with sev­eral of their clients that ul­ti­mately led to the firm pay­ing more than $2.5 mil­lion in com­pen­sa­tion to those clients. Sco­tia Cap­i­tal, in turn, re­quired a su­per­vi­sor to con­trib­ute $100,000 to the client resti­tu­tion; in ad­di­tion, as part of a sub­se­quent set­tle­ment with IIROC, the firm agreed to dis­gorge that amount to a char­ity.

IIROC also is on pace to ex­ceed last year’s level of en­force­ment ac­tiv­ity in cases in­volv­ing in­di­vid­ual ad­vi­sors. The SRO com­pleted 30 pros­e­cu­tions against in­di­vid­u­als in the nine months ended Sept. 30. In each of the past two years, the reg­u­la­tor com­pleted 40 cases.

Al­though Elsa Ren­zella, IIROC’s vice pres­i­dent of en­force­ment, ac­knowl­edges that the SRO is poised to ex­ceed last year’s pros­e­cu­tion to­tals, she also sounds a note of cau­tion: “It’s im­por­tant to keep in mind that some cases are more com­plex, re­quire more at­ten­tion and re­sources, and may take longer to com­plete.”

Still, IIROC is set to in­crease the sanc­tion to­tals it has posted in each of the past cou­ple of years against ad­vi­sors. The SRO has handed down more than $2.8 mil­lion in mone­tary sanc­tions against in­di­vid­ual ad­vi­sors thus far, in­clud­ing $1.7 mil­lion in fines, $330,000 in costs and $776,000 in dis­gorge­ment. In all of 2016, in­di­vid­u­als col­lec­tively were hit with $3.1 mil­lion in sanc­tions, up from $2.95 mil­lion in 2015.

More im­por­tant, the SRO now is bet­ter po­si­tioned to col­lect the sanc­tions it levies against in­di­vid­u­als: leg­is­la­tors in On­tario re­cently granted IIROC the power to en­force its dis­ci­plinary or­ders in court. (Pre­vi­ously, IIROC en­joyed this power only in Al­berta, Que­bec and Prince Ed­ward Is­land.)

IIROC has long sought this ca­pa­bil­ity to bol­ster the cred­i­bil­ity of its en­force­ment process. Too of­ten, fines im­posed against in­di­vid­ual ad­vi­sors went un­paid be­cause an ad­vi­sor who had been dis­ci­plined could evade his or her penal­ties by leav­ing the in­vest­ment in­dus­try.

IIROC re­ports that it’s un­able to pro­vide much in­sight into how this new power in On­tario will af­fect its col­lec­tion rate as yet. To date, there’s about $20 mil­lion in un­paid fines in­volv­ing for­mer ad­vi­sors in On­tario, which ac­counts for about two-thirds of IIROC’s to­tal un­paid fines. Still, the SRO ex­pects its re­cently in­creased author­ity will en­hance its en­force­ment ca­pa­bil­i­ties sig­nif­i­cantly.

In ad­di­tion, IIROC ac­quired new en­force­ment pow­ers in Al­berta this year, in­clud­ing the abil­ity to com­pel co-op­er­a­tion with its in­ves­ti­ga­tions and statu­tory i mmu­nity for IIROC staff mem­bers who are car­ry­ing out their du­ties in good faith. The SRO is seek­ing to add these pow­ers to its en­force­ment arse­nal in ev­ery prov­ince.

Al­though en­force­ment ac­tiv­ity is up this year, not much has changed re­gard­ing the en­force­ment is­sues the se­cu­ri­ties in­dus­try faces; suit­abil­ity re­mains the top com­plaint from clients. No­tably, IIROC’s sta­tis­tics through the nine months ended Sept. 30 re­veal that al­le­ga­tions in­volv­ing suit­abil­ity ac­count for al­most half of the en­force­ment cases opened so far this year; that’s 83 of 180 cases, ac­cord­ing to Ren­zella.

“Un­suit­able in­vest­ments con­tinue to be a ma­jor source of en­force­ment cases this year,” she says. “Suit­abil­ity and cases in­volv­ing se­niors re­main two key ar­eas of fo­cus for our en­force­ment de­part­ment. We also con­tinue to pur­sue a va­ri­ety of other cases to en­sure the proper pro­tec­tion of in­vestors and the in­tegrity of the cap­i­tal mar­kets in Canada.”

Look­ing ahead, though, IIROC en­force­ment staff may face a de­clin­ing work­load. The num­ber of events re­ported to the reg­u­la­tor so far this year via the com­plaints and set­tle­ment re­port­ing sys­tem (ComSet) used by firms in the in­vest­ment in­dus­try — re­ports that in­clude client com­plaints, civil law­suits and in­ter­nal dis­ci­pline — looks set to de­cline year-over-year.

The SRO re­ceived 1,437 ComSet re­ports, in­clud­ing 1,207 client com­plaints, in all of 2016. But through the nine months ended Sept. 30, 2017, there were 862 ComSet events re­ported to IIROC, in­clud­ing 692 client com­plaints. As­sum­ing this trend per­sists, firms in the in­dus­try col­lec­tively are on track to re­ceive about 920 client com­plaints and re­port a to­tal of 1,150 ComSet events this year — a sharp drop from last year.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.