Regulatory tips from IIROC and FINRA

May 24, 2016 | Last updated on May 24, 2016
3 min read

Enforcement directors and defence counsel are focusing on recent developments in advisor/dealer litigation.

In fact, at a recent event on U.S.-Canadian securities litigation at the National Institute in Toronto, IIROC director Alexandra Clark highlighted items from IIROC’s 2015 enforcement report, including:

  • regulatory collaboration to prevent sanctioned individuals from being further licensed in the financial industry;
  • suitability, the most prosecuted rule violation; and
  • deceptive trading cases.

Another standout: firm supervision. “In every case we open — any investigation of an individual rep — there’s always an examination of whether that individual was properly supervised in the circumstances,” she says.

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Clark also notes the consolidated enforcement rules, which come into effect in 2016. “For those of you who play in our sandbox lot, you’ll definitely want to school yourselves on that new set of rules.”

Also during the event, FINRA vice-president J. Bradley Bennett responded to IIROC’s focus on suitability, and referenced the movie When Harry Met Sally. “I’ll have what you’re having, because [we have] the exact challenges. It’s a reminder of how much we have in common.”

He says the bulk of the FINRA docket is retailer investment protection cases: 1,400 cases per year, most against individual brokers for stealing or for sales practice violations. “Whether good market or bad market, we seem to have this base level of reps who go [metaphorically] offline every year, so that’s the big challenge for my staff.”

Read: IIROC imposed more sanctions in 2015

Another FINRA obligation is anti-money laundering (AML), which Bennett describes as a gateway barrier to other fraud. “It is the key to stopping so much other bad conduct,” he says, giving the examples of microcap fraud and unregistered securities.

Complex products

Clarke says complex products continue to be an IIROC focus. “When you do have a new product coming down the pipe, make sure you’re learning enough about it, [and] make sure your reps understand enough about it before you put it on your shelf.”

Adds Bennett, “In particular, that they understand more than how high the commission level is.”

His concern is annuity sales cases — an intersection of suitability and the protection of seniors. “We have a perfect storm of complex products [and] aged investors [who] are desperate for income in a zero-interest environment, and that’s a toxic stew.”


Tone at the top is an evolving concept, says moderator Andrew Sidman, a principal at Bressler, Amery & Ross in New York. Originally, the focus was on reps, then supervision and, now, conflicts. FINRA currently has a targeted exam for conflicts protocols. In April, IIROC published a notice on managing conflicts. Sidman asked panelists: How do you establish an appropriate tone and eliminate conflicts?

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Hugh Corbett, counsel at Edward Jones in Mississauga, says, “The most senior leaders make a point of being present in person for a number of the important compliance and regulatory symposiums.”

Further, “There has to be a cornerstone principal where the client is put number one, and the actions we take are meant to serve the clients, and everything is viewed through the lens of what is optimal for clients.”

Clarke again reminded that enforcement looks at the role of the supervising branch manager and head office when investigating individual misconduct. She notes cases at the highest levels — CCO or UDP — have systemic failures that involve conflict of interest. Expressing a view that reflects CSA’s recent proposed targeted reforms and best interest standard, she says firms must consider conflict of interest from top to bottom.