MFDA censure and single regulator top 2011

As you might expect during a year following one financial crisis and during which another reared its head, 2011 saw more than its fair share of regulatory activity.

The year started out with twin regulatory shudders.

First, the MFDA responded to a British Columbia Securities Commission condemnation over the use of SRO staff to solicit proxy votes from MFDA members, ahead of a controversial vote that would extend the term limits for its board of directors. That vote took place at the annual general meeting in December 2008, prompting Partners in Planning to file a formal complaint saying the staff action could be construed as pressure to approve the amendment.

Then, the chair of the global CFA Institute advocated major changes in Canada’s regulatory regime. Marg Franklin called for a complete overhaul of the RCMP Integrated Market Enforcement Teams and said a single federal regulator would also improve protections for investors. Other critics pointed to underfunding as the root cause of regulatory ineffectiveness.

Major world organizations, including the International Monetary Fund, also raised questions about the soundness of Canada’s securities and banking oversight. The two major SROs, IIROC and the MFDA, later announced plans to team up on the development of a list of disciplined brokers and advisors. IIROC also made changes to its arbitration program that increases award amounts for complainants.

Adoption of a single market regulator, long discussed as a change agent to mitigate existing arbitrage, gained some traction during 2011; even as British Columbia openly joined Quebec and Alberta in their opposition to the federal mandate. Albertan Bill Rice’s assumption of the top job at CSA, which is charged with smoothing interprovincial rule differences, did little to sooth matters. And the CSA’s review of IIROC’s operations gave the self-regulatory organization a clean bill of health.

Others voiced the belief that advisors could cover off the work of regulators if they took their duty of care obligations to clients seriously. Fee transparency was also debated at length, but no signs emerged that advisors were prepared to drop commissions just yet.

Short selling got its day in the sun when IIROC sought comment on its universal market integrity rules, which govern the practice. CFAs cited derivatives as the most dangerous instruments being deployed by traders; and the CSA sought comments on how markets should handle them. New accounting and reporting standards also threaten new headaches for product manufacturers and distributors going forward.

Insurance regulators started the year with an issues paper saying they’d take a hard look at the activities of MGAs. Comments were also requested on how banks should operate within the insurance space. Both issues are still at the debate and blue ribbon commission stage.

An attempt by the London Stock Exchange to buy the TSX had its share of regulatory scrutiny, but was ultimately scuttled by vocal opposition.

Not all the 2011 rule changes were harsh. Banks and other financial institutions saw a relaxation of rules related to electronic communication with customers as well as the movement of client documents online. IIROC also gave its okay to certain uses of social media networking services by registered investment advisors. Neither set of changes, however, usurps requirements currently in place at companies; those must be altered on a case-by-case basis.

And, as advisors and distributors struggled with how they’d cope with point of sale requirements, the CSA deemed that delivery of the fund facts document would satisfy the spirit of the regulation.

2011 also saw a larger than normal tally of disciplinary actions from both IIROC and the MDFA:

IIROC

MFDA

• IIROC sets penalty against Blackmont Capital, Duke • IIROC slaps ex-advisor with $1 million fine • IIROC levies $1 million fine • IIROC fines Connacher half a million • Outside business activity fine tops $320,000 • IIROC levies $300,000 sanction on advisor • KYC failure costs advisor $27,000 • Supervisory lapse costs $25,000 fine • Personal dealings fine costs advisor $25,000 • Suitability lapse costs $23,000 • IIROC levies $10,000 fine for client pay-off • IIROC releases decision, penalty for Shamseer • Penalties in artificial bid case • IIROC announces settlement with Mary Louise Kasten-Brown • IIROC settles with Allan Mansfield Bush • IIROC finds against Brian Vaughn Wilson • IIROC reaches decision for Ronald Stoneburg • IIROC settles with All Group Financial Services • IIROC settles with Paul Ryan Klemke • IIROC settles with National Bank Financial • IIROC settles with Paul Clarke, Todd O’Reilly • IIROC settles with Gateway Securities • IIROC settles with Credit Suisse Securities • IIROC releases decision for Dennis • IIROC settles with Gary John Williamson • IIROC announces settlement with Richard Roy • IIROC announces penalty for Dale Richard Wells • IIROC settles with National Bank Direct Brokerage • IIROC sets penalty for Cooney, Jory Capital • Ontario Court of Appeal refuses Berry appeal • IIROC settles with Todd William Stefiuk • IIROC sets penalty for Benarroch, Kent, Glover and Credifinance Securities • IIROC fines, bans Michael Thomas Jones • IIROC sets penalty against O’Neill • IIROC announces decision for Bryan Dale Claggett • IIROC settles with Maison Placements • IIROC settles with Beacon Securities • IIROC bans, fines Marcel Anil Rada • IIROC settles with Donald Dean Mackenzie • IIROC announces decision for David Bruce Connacher • IIROC fines Cornacchia, Northern Securities • IIROC settles with Konstantinos Georgeos Arapis • IIROC fines CIBC World Markets • IIROC finds against Jean-Luc Beaudoin • IIROC finds against Natalie St-Amant • IIROC rules against Melaney Phillips • IIROC clears Christos Orestes Ilias • IIROC settles with Allan Mansfield Bush • IIROC settles with Elizabeth Maureen Morrison• IIROC settles with Morgan Stanley Canada • IIROC sets penalty hearing for Melaney Phillips

• MFDA accepts settlement with Lambros • MFDA accepts settlement with Pan Chen • MFDA issues reasons for decision on Excel Financial Growth • Mallard wins a round in fight with regulators • MFDA makes findings against Sergio Gizzo • MFDA makes findings against Jones • MFDA settles with Calogero Arcuri • MFDA makes findings against Michael Franco • MFDA to hear Laurier Capital Planning settlement • MFDA issues reasons for decision in Gabrielson case • MFDA issues reasons for decision in Fanelli, Torchia cases • MFDA accepts settlement with Victor Lee • MFDA makes findings against Smith • MFDA finds against Tadeusz Bytnar • MFDA issues reasons against Calogero Arcuri • MFDA issues reasons against Partners In Planning • MFDA settles with Connor Financial, Joel Connor • MFDA issues reasons against Zenon Smiechowski • MFDA issues reasons for Jones decision • MFDA issues reasons in three cases • MFDA issues reasons for decision against Smith • MFDA settles with Laurier Capital Planning • MFDA settles with Gillian Gibson-Sargeant • MFDA finds against Wijaysri Sivasubramanian • MFDA issues reasons in Bytnar case • MFDA issues decision, reasons in Ryan case • MFDA issues reasons in matter of Chris McAuley • MFDA accepts settlement with Sentinel Financial • MFDA accepts deal with Queensbury Strategies • MFDA finds against Douglas Wellings • MFDA rules against Dickson • MFDA finds against Carmel Toussaint