Regulator sanctions firm for failure to supervise former investment advisor who unduly relied on accountant for KYC information
The Investment Industry Regulatory Organization of Canada (IIROC) has accepted settlement agreements between IIROC staff, RBC Dominion Securities (RBC DS), and a former RBC DS investment advisor Roberta Benson.
According to IIROC, Benson admitted that between March 2007 and July 2015, Benson failed to use due diligence to learn and remain informed of the essential facts relative to several clients. She retired from the industry in March 2016.
A settlement agreement document from the self-regulator explains that Benson was working with an elderly high-net-worth client of RBC DS, who was the president as well as a director and the sole shareholder of a corporation.
During the time she was servicing the elderly client, an accountant (denoted as SC in the document) was assigned trading authority over the client’s accounts. SC was a principal of a large Toronto accounting firm and a long-time, trusted friend to the elderly client and her family. The NCAF filled out in relation to the client’s account incorrectly stated that she was a sophisticated investor.
SC also opened three margin accounts at RBC DS, signing NCAFs indicating that he was a sophisticated investor who’s comfortable with high risk in most cases.
A margin account was also opened in his wife’s name later on, which he had trading authority over and used as his own; over time, the KYC information for that account was updated, changing the wife’s investment knowledge from “limited” to “good”.
Four margin accounts were also opened for the elderly client’s corporation, with SC designated as the sole trading authority and the client as the sole beneficiary.
During the relevant period, Benson had primary responsibility over all the accounts. She relied on SC to provide information in connection with orders and other client service matters, and failed to communicate directly with SC’s wife and the elderly client to ensure the account parameters were appropriate.
Meanwhile, SC also proceeded to use his authority to help establish a cross-guarantee relationship between himself, his wife, and the elderly client’s corporation, wherein each party guaranteed the others’ obligations to RBC DS.
Over several years, SC took on a self-directed, unsolicited high-risk trading strategy in both his and his wife’s accounts; he relied on the guarantees he had established to meet the margin requirements of those accounts using the excess loan value in the corporation’s accounts. By April 2010 and up to October 2015, the debit balance in his accounts had exceeded his total net worth.
Pursuant to a settlement agreement recommended by IIROC enforcement staff, Benson has been fined $30,000 and sanctioned with a five-year suspension; she also agreed to pay costs amounting to $10,000.
RBC DS also admitted that it failed to supervise Benson, and has agreed to pay a fine of $350,000 and costs of $50,000 under a separate settlement agreement.
