FAIR Canada expresses dismay after recommendations over disciplinary proposals are not adopted
FAIR Canada has stressed its continued opposition to two IIROC disciplinary proposals after the second comment period closed last week.
The Investment Industry Regulatory Organization of Canada (IIROC) had opened up the proposed Minor Contravention Program (MCP) and Early Resolution Offers (ERO) once again to public comment and told WP it was now in the process of reviewing the feedback from investor advocates, including FAIR.
The disciplinary initiatives are designed to give IIROC more options when dealing with minor offences. However, after the first round of public comment, FAIR believed the lack of transparency and public record around some of these changes would actually harm investor confidence.
The MCP will impose fines on approved individuals - $5,000 per contravention – for offences that might not have triggered any substantive legal action by IIROC in the past. Meanwhile, an ERO process permits IIROC to make formal offers of settlement earlier in the enforcement process at the time, or shortly after, a formal investigation is commenced. The ERO would constitute IIROC’s “best offer” to settle by granting a reduction of 30% on the sanctions.
FAIR said it was left “disappointed” its comments and recommendations had not been adopted first time around and stated it was unable to support the two proposals in their current form.
An IIROC spokesperson, however, said that after approaching a number of stakeholders and holding two in-person roundtables, it subsequently made adjustments to the proposals. which were published again for comment. In addition, it worked with The Strategic Counsel, a national independent research firm, to develop and conduct a survey of more than 1,000 Canadian investors to get their input on the proposals. The results showed that investors displayed strong support for the two proposed programs but indicated that the amounts of fines for minor violations should be increased, hence the rise to $5,000. Also, under the latest proposal firms would not be eligible for the MCP.
FAIR's July statement made it clear it still harboured deep concerns that the absence of sufficient historical data negatively impacts the transparency and accountability of IIROC’s enforcement efforts and undermines public confidence in the process of regulatory enforcement.
“The MCP will not result in a public record of the Approved Person having been disciplined that is accessible by clients, prospective clients or prospective investment dealer employers of the Approved Person. FAIR Canada questions how such an outcome is in the public interest and consistent with IIROC’s stated goals of protecting investors and supporting healthy Canadian capital markets.”
The organisation said it also opposed permitting a discounted sanction in circumstances where there is not full disgorgement of any profits made and full compensation paid to investors for any losses, including interest and fees incurred.
“It should be a condition requisite for eligibility for resolution of a rule contravention by either MCP or ERO that any client harmed by the rule contravention has received full compensation for loss and that any commissions or fees incurred have been repaid to the client.
“FAIR Canada repeats its recommendation that IIROC amend its Consolidated Rules to permit open court principles to apply to any hearings before the IIROC Hearing Committee to consider proposed settlements, whether pursuant to the MCP, the ERO Staff Policy Statement or otherwise.”
An IIROC spokesperson said that the goal of the MCP is to provide individuals with an incentive to admit to minor rule violations so IIROC Enforcement can focus its resources on matters that are more serious or harmful to investors.
"It is important to note that this program would only apply to cases where investors have not been materially harmed. IIROC is continuing with its comprehensive multi-phased consultation and will outline next steps once the input from the latest round of public comment has been given proper consideration."
