Why IIROC collected $700K more in fines last year

Despite receiving fewer complaints, IIROC collected $700,000 more in 2017 fines than in the previous year, driven by an increase in fines against firms, the SRO’s annual enforcement report says.

The report’s message about a regulatory system with “teeth and integrity” and holding wrongdoers accountable is backed up by the fines collected: $3.4 million in 2017, up from $2.7 million in 2016.

Sanctions against firms of more than $1 million was the main driver, compared to $425,000 in 2016.

“One significant highlight in 2017 was enforcement’s actions against firms and senior compliance personnel,” the report says. “The number of prosecutions involving firm supervisory failings increased by 25 percent and the total fines against firms more than doubled.”

IIROC, which celebrates its 10th anniversary this year, credits the jump in fines collected to its expanded powers in B.C., Manitoba, Ontario and P.E.I. Since January 2017, all of those provinces have introduced and/or passed legislation to bolster IIROC’s ability to work through their provincial court systems.

Prior to 2017, IIROC only had legal authority to enforce fines in Quebec and Alberta, it says, adding that Alberta also introduced a bill in June 2017 to protect the SRO against lawsuits over actions it pursues.

2017 complaint and case details

IIROC received 1,163 complaints in 2017, down from 1,459 in 2016.

The main sources were the public (197) and the complaint and settlement reports that it requires from dealer members (903). Unsuitable investment recommendations were the most common cause of complaints that were opened by IIROC case assessment (27%), the report says, followed by complaints about unauthorized discretionary trading (12%) and misrepresentation (3%).

With fewer complaints, the SRO also completed fewer investigations: 127, down from 138 in 2016. Almost half (46%) were referred to prosecutions since there was a breach of IIROC rules. Most of the investigations took place in Ontario (72), followed by B.C. and Quebec (21 each).

Out of those investigations, 44 prosecutions (compared to 46 last year) involving a decision and sanctions were made, with Ontario again leading the way (with 22). Thirty-seven had to do with individuals while seven involved firms.

As with the complaints, prosecutions of individuals to do with suitability, due diligence and the handling of client accounts were most common (20 of the 44 prosecutions). Inappropriate financial dealings resulted in seven prosecutions, and the rest had to do with various activities, including forgery (3), unauthorized trading (3) and supervision issues (4).

For firms, six of the seven prosecutions had to do with supervision issues.

IIROC is also focused on “issues relating to conflicts of interest as a key regulatory priority.” The types of conflicts prosecuted last year “included issues of non-disclosure and trading conflicts between an advisor and his client,” it adds.

IIROC’s fine collection rate

IIROC imposed sanctions of more than $4 million against firms and individuals last year, compared to the $3.4 million it collected. Sanctions include fines, costs and disgorgement.

In its report, the SRO breaks that down further:

• there were sanctions against firms of just over $1 million, compared to $425,000 in 2016, but the collection rate was 91.2% versus 100% in 2016;
• against individuals, the SRO imposed sanctions of $3.4 million, compared to $3.1 million in 2016, and the collection rate was 16.2% versus 8.3% a year earlier; and
• the SRO permanently suspended one firm, while it suspended 16 individuals, permanently barred five, and imposed conditions on 22.

Overall, there’s more work to be done, says Elsa Renzella, senior vice-president of registration and enforcement. In her message, she wrote, “Over the past decade, $32 million in fines remains uncollected from individuals who walked away from discipline without any repercussions. This motivates IIROC to keep driving forward with our push for enhanced change.”

For the year ahead, the SRO aims to increase its fine collection rates and develop alternative forms of discipline including a “minor contravention program” and early resolution offers. As well, its enforcement branch is angling for expanded “statutory immunity for IIROC and its personnel when acting in the public interest” and more authority when it comes to evidence collection.

Read the full report.

Also read:

IIROC proposes changes for handling minor violations, early settlement

MFDA imposed $8.5M in fines last year

BCSC consulting on proposed fee changes

IAP continues focus on embedded commissions, best interest

Move over CRM2: MFDA proposes total cost disclosure