Justitia, the goddess of justice
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This article appears in the Fall 2020 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

Imagine you’ve been charged with driving under the influence. While your court date is months away and you expect to be acquitted, regulators require that you disclose the charges almost immediately.

Advisors must notify regulators within 10 days of a change to certain information on Form 33-109F4 Registration of Individuals and Review of Permitted Individuals (Form F4). These changes include criminal charges, as well as civil actions and bankruptcies.

CSA Staff Notice 33-320 from 2017, which details the importance of accurately filling out the form and maintaining ongoing disclosure, says a false or misleading form “raises a red flag […] that the applicant may be lacking in integrity.” Integrity is one of three criteria to determine suitability for registration, along with proficiency and solvency. If integrity is called into question, your registration is on the line.

Elizabeth King, deputy director of compliance and registrant regulation at the Ontario Securities Commission (OSC), said in an emailed statement that when applicants aren’t forthcoming and truthful on the forms, “we have to question whether they are suitable for registration and will deal fairly, honestly and in good faith with their clients.”

Though charges or other negative information can be embarrassing, the fallout from a failure to disclose can have worse consequences.

Erez Blumberger, president of AUM Law in Toronto and a former OSC deputy director of compliance and registrant regulation, says advisors likely won’t be refused registration based on disclosed criminal charges.

“Most charges are not directly relevant to the applicant’s ability to provide financial advice with integrity,” Blumberger says. “Integrity” in this context means clients can rely on and be confident in the advisor’s advice, he says.

He also notes that regulators require full information to make informed decisions about registration.

With most charges not affecting the advisor’s ability to do their job, regulators likely won’t do anything beyond monitoring the registrant.

“They won’t typically impose terms and conditions or seek any sort of suspension,” Blumberger says. Such action would be “very aggressive,” he says, “because nothing’s been proven.”

Regarding the nature of disclosed charges, “nothing is fatal in and of itself,” Blumberger says. Each case turns on its own facts.

At an “opportunity to be heard” this year regarding a prospective registrant’s application, the OSC granted registration to a man convicted of possessing child pornography.

The OSC director (compliance and registrant regulation branch) said the criminal conviction wouldn’t cause the commission to refuse registration “in this circumstance” after determining that the man had been honest with OSC staff during a voluntary interview about the conviction. The applicant disclosed the conviction, paid for his crime with jail time and monetary sanctions, and was remorseful, the decision said.

In contrast, the OSC refused registration earlier this year to a former registrant who repeatedly failed to disclose a driving under the influence (DUI) charge for which he was eventually acquitted.

“Undisclosed or misleading information will always require further review by [regulatory] staff,” King said, which could lead to an application being delayed or refused.

King says firms also play a role in registration. As “gatekeepers in the registration regime,” they must verify the information in applications and assess applicants’ suitability.

“We will hold individuals and firms accountable for false or misleading applications, including not disclosing detrimental information,” she said.

Failure to disclose charges during an application process as well as false or misleading statements may constitute a provincial or criminal offence, the staff notice says, with significant sanctions.

As such, firms or individuals with questions about disclosure should contact registration staff before filling out an application, King says.

Blumberger says he’s never seen monetary sanctions apply to a failure to update or disclose information on an F4.

He also recommends advisors seek legal counsel before disclosure — especially if advisors are disclosing months after the fact. An employment lawyer can help position the delayed disclosure where, for example, mental health or stress played a role, he says.

When advisors delay, “they could be terminated,” he says. “Often it’s a condition of employment that you provide timely disclosure.”

If registration is denied because of a failure to disclose, advisors may re-apply and be approved based on six factors, including evidence of trust in performing business duties, demonstration of remorse and the passage of sufficient time for deterrence purposes.

After denying the registrant with the undisclosed DUI charge, the director explicitly stated the man shouldn’t be barred from re-applying, noting his youth and remorse.

Late disclosure is “not necessarily fatal,” Blumberger says, “but it’s definitely going to impact your status with the OSC and your employer.”