MFDA publishes new principles-based sanction guidelines

The new regime replaces the organization’s penalty guidelines that had been in place for over a decade

By Leo Almazora

Nov 20, 2018

The Mutual Fund Dealers Association of Canada (MFDA) has come out with new sanction guidelines to direct its decisions. The guidelines, published on November 15, supersede the body’s penalty guidelines, which had been in place since 2006.

“The Sanction Guidelines are intended to promote consistency, fairness and transparency by providing a framework of applicable regulatory principles to guide the exercise of discretion in determining sanctions,” the MFDA said.

The sanction guidelines provide a summary of key factors on which member panels may base their decisions. But the guidelines are not binding on hearing panels and other factors and circumstances may be considered, as the appropriate sanction in any case depends on a discretionary and fact-specific process.

The key factors included among the new guidelines are:

General and specific deterrence
Maintaining public confidence
The seriousness of allegations proved against a respondent
Respondent’s recognition of their misconduct
Benefits gained by the respondent from the wrongdoing
Harm suffered by investors arising from the misconduct
Respondent’s past conduct, including prior sanctions
Whether the respondent has been previously sanctioned for the same misconduct
Previous decisions issued in similar cases
For multiple violations, the cumulative sanction should reflect the totality of the misconduct
Respondent’s ability to pay
Voluntary acts of compensation, restitution, or disgorgement by the respondent
Respondent’s proactive and exceptional assistance to the MFDA

According to the MFDA, sanctions must be proportionate to what the public would reasonably expect: inadequate punishment could undermine confidence in the mutual fund industry, while excessive sanctions could reduce respect for the enforcement process and dilute its deterrent effect.

“[D]istinctions may be drawn between misconduct that was unintentional or negligent, and misconduct that was intentional, manipulative, fraudulent or deceptive,” the organization added. “Distinctions should also be drawn between isolated incidents and repeated, pervasive or systemic violations.”

In determining a monetary sanction, the guidelines also allow the consideration of a respondent’s ability to pay aside from factors such as deterrence and the need to bolster public confidence. The onus is on the respondent to prove their inability to pay, in which case a lesser sanction may be issued by the hearing panel. Conversely, the panel may decide to hand down a higher fine for respondents with significant financial resources.

The MFDA’s new sanction guidelines also outlined the types of sanctions that hearing panels may impose, including fines, suspensions, permanent prohibition and termination. Other remedial sanctions include:

A reprimand
Conditions on a respondent’s authority to conduct securities-related business
Terms and conditions on their membership
The appointment of a monitor or independent consultant to oversee and report on a member’s activities
Directions for the orderly transfer of client accounts from the member

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