IIROC wants teeth as fines pile up

When the Investment Industry Regulatory Association of Canada issued its first report on unpaid fines more than two years back, outrage was the order of the day.

The report, which listed “individual registrants who have failed to pay fines, disgorgement, and/or costs imposed as a result of disciplinary action taken against them since 2008,” demonstrated that something was wrong.

In all, more than 140 individuals were listed in the report. Those individuals, who had all presumably attained the required educational standard to work in the financial services business, had committed transgressions that were decided by an IIROC hearing panel — and then promptly left the business leaving more than $25 million in unpaid fines. The price for that non-payment: the named individuals couldn’t work in an IIROC registered firm.

“It is unacceptable that disciplined individuals can abuse their clients’ trust and evade the consequences of their actions,” said Andrew Kriegler, president and chief executive at IIROC, on Thursday. In his view, “investors must be confident that firms and individuals are complying with the rules and that any breach will result in real consequences.”

Earlier this year IIROC, the “national self-regulatory organization that oversees all investment dealers and trading activity on debt and equity marketplaces in Canada,” updated that initial report. That document showed little progress had been made in reducing the totals: in all $27.9 million in fines, had not been collected from 144 individuals — or about $200,000 per transgression.

This month IIROC updated that report with new information to August, 2016. The report shows that a dozen individuals have been added — with more than $1.5 million owing — meaning around $30 million is still owed.

The new unpaid fines range from $12,500 to $557,485. In a number of cases the individual who was accused of transgressions didn’t attend the hearing despite “been given every reasonable opportunity to do so.”

The overall transgressions vary from “unauthorized trading in the account of a client,” to engaging “in personal financial dealings with clients without the knowledge or consent of his member employer,” to “disgorgement of commissions,” and misappropriating “funds from clients.”

Engage in that behaviour at the local Mac’s Milk and the gumshoes would be there in a flash.

According to IIROC’s figures, the largest number of its prosecutions resulting in fines involve “the sale of unsuitable investments, mostly to seniors and other vulnerable clients.”

Based on information supplied by IIROC, Ontario has the dubious distinction of being the leader in unpaid fines. Individuals in that province (as of the end of September) owed $18 million — or more than four times what B.C. based registrants owe. The overall collection rate is 19 per cent — but a mere 13 per cent in Ontario.

Alberta and Quebec are at the other end of spectrum: in those provinces the collection rate is above 30 per cent. (Since 2013 when the Quebec government amended the provincial securities act the collection rate is closer to 40 per cent.)

It’s worth noting that in those provinces, the government has given IIROC the power to pursue the individuals and collect the fines through the courts. Indeed Kriegler said IIROC is urging other provincial governments to follow the lead of Quebec and Alberta.

The numbers seem to indicate that if the power is given, then IIROC — which of late has signed agreements with other regulators designed to prevent the nonpayers from working in a different part of the industry or another jurisdiction — will collect the fines, but not all of them.

THE NEW FINES RANGE FROM $12,500 TO $557,485.