Client request to cash out amid COVID-19 market panic delayed due to KYC deficiencies
The Canadian Investment Regulatory Organization (CIRO) has fined a BC-based advisor $30,000 for offering compensation in response to a client complaint and guaranteeing she’d receive a specific result from her investments.
As detailed by the settlement agreement document by CIRO, dealing representative Matthew Ewonus received a client email with instructions to “cash out” all of the client’s accounts “immediately” on March 19, 2020 amid the COVID-19 downturn in the markets. The client later phoned Ewonus to switch her holdings to a high-interest savings cash fund.
But because Ewonus hadn’t updated her KYC information during the previous 24 months, the client’s order couldn’t be processed immediately under his dealer firm’s policies and procedures.
“Since the Respondent had not reviewed and updated client CM’s KYC information since January 26, 2018, the Member’s order entry system would not allow the processing of trades in the clients’ accounts until the KYC information applicable to such accounts was reviewed and updated,” CIRO said.
Ewonus immediately obtained instructions from the client to update her KYC information, after which she signed a KYC update form. He executed the KYC update on March 20 and submitted her trade request again, but because he filed the request after the cut-off time for same-day transactions, it couldn’t be settled until March 23.
After the client emailed back with numerous complaints – that he had not arranged for her KYC update sooner, had not processed the trade the same day she instructed, and other grievances – he emailed back to say there’d been a miscommunication, and he’d “look into” the matter.
Two days later, the client emailed again frustrated that Ewonus hadn’t sold her accounts to cash as instructed on March 19, and said she expected her account to be settled with a closing balance of $128,000, equal to its closing balance as of March 19. By March 23, when the transaction she’d requested had pushed through, the portfolio’s value had declined by $5,000.
A voicemail message to the client on March 23 revealed Ewonus personally guaranteed the client would be compensated. At that point, he had not yet informed his dealer that the client had complained, and he had not obtained authorization to compensate the client.
The client emailed Ewonus and his employer firm on March 25 with further complaints, prompting an investigation. On March 30, the firm asked Ewonus if he’d offered to pay her $5,000 in compensation, which he denied.
The investigation eventually escalated into inquiries from the Mutual Fund Dealers Association of Canada (MFDA), during which Ewonus again denied he’d offered compensation.
As part of the settlement agreement, Ewonus is also required to pay $5,000 in costs and serve a six-month suspension.
