IIROC hands out six-figure fine for failure to detect improper account openings and deceptive transaction error requests
The Investment Industry Regulatory Organization of Canada (IIROC) has sanctioned National Bank with a penalty of $250,000 for oversights with respect to options trading within its business.
According to a settlement agreement published by IIROC, the bank failed to maintain adequate controls over the opening of options accounts. That allowed options trading accounts to be opened in four specific instances in 2015, with each client having the same investment advisor.
“While Respondent’s procedures and policies with respect to options trading approval provided guidance, they did not provide adequate controls to reduce to a relatively low level the risk associated with the acceptance of these four clients to trade the specific options they traded,” IIROC said.
With the controls in place at the time, the clients were approved to pursue a trading strategy that resulted in a large volume of trades and exposure to high risk for the clients, more commissions in favour of the investment advisor for these clients, and margin deficiencies in one client’s account.
All in all, the options trading resulted in $272,325 in losses for the four clients, which National Bank compensated, and margin deficiencies in one client’s acount.
IIROC said the bank also had inadequate controls to detect and make prompt corrective measures to trade error transactions. That opened the door for an investment advisor to cancel transactions with respect to 18 accounts between January 2015 and March 2018.
The advisor represented to National Bank that he made trading errors that needed correction, when in fact he sought to artificially boost the performance reflected in client accounts. According to IIROC, the advisor filed 101 purported error corrections over the three-year period, inflating the value of the 18 accounts by $145,885.
National Bank detected the purported corrections, questioned and analysed the transactions, and stepped in to prevent further instances of those deceptions. It has also made investments and spent significant effort to beef up its controls, IIROC said.
The bank has also agreed to pay costs in the amount of $40,000.
