IIROC moving ahead with new procedures for ‘minor violations’

The Investment Industry Regulatory Organization of Canada (IIROC) is going ahead with plans for a couple of new disciplinary tools, which include a standard fine for minor violations that won’t impact a rep’s public record, and a new discount for settling cases early.

In an IIROC notice published April 25, the self-regulatory organization sets out rule proposals that would introduce two new alternatives to its existing disciplinary process.

The new tools, if approved, would “provide more flexibility in the way individuals and firms are disciplined for breaking IIROC’s rules,” IIROC says.

The proposals include a new procedure for imposing fines against individual reps for “minor violations” that don’t involve harm to investors.

The minor contravention program, “would provide a more efficient means to resolve cases that cannot be adequately addressed by way of a cautionary letter but do not warrant formal disciplinary proceeding,” IIROC says.

Under this program, reps that admit to contraventions would be fined $5,000. However, reps would remain anonymous, and their admission would not form part of their disciplinary record. IIROC would publish a quarterly report detailing these cases, without identifying the reps involved.

IIROC also proposed to introduce a new early resolution offers process for settling certain kinds of cases quickly. This would provide dealers and reps a 30% discount on proposed sanctions for resolving their case without undergoing a full hearing. The new procedure would be introduced by a policy statement, rather than a rule change.

“This approach would allow IIROC to address wrongdoing more quickly by reducing the time required to complete a case. It would also encourage firms to take corrective action and compensate clients,” IIROC says.

The proposals are out for comment until July 24. Last year, IIROC launched a consultation on possible disciplinary alternatives. It also canvassed investors on the issue through a combination of focus groups and an online survey of more than 1,000 investors.

The SRO reports that it heard there’s “strong support” for the proposed new tools among investors, although they recommended increasing the fine for minor violations from IIROC’s original proposal.

Initially, IIROC proposed that individuals be fined $2,500 for minor violations, and that firms face a $5,000 fine.

However, the industry SRO is now proposing that the program would only be available to individuals; the fine for reps has been doubled and these cases would need to be approved by a one-person hearing panel.

During the consultation, investor advocates also expressed concerns about the fact that minor violations would not be made public. Industry trade groups indicated, among other things, a concern that the new tools could lead to increased enforcement action, possibly prompting additional legal action, too.

“These changes would provide alternatives to IIROC’s formal disciplinary hearing panel process, allowing hearings to focus on matters that are more serious or harmful to investors – ultimately making IIROC’s discipline more timely and proportionate to the offenses,” said Elsa Renzella, senior vice-president, registration and enforcement, at IIROC, in a statement.

“We expect these programs would contribute to enhanced efficiencies while providing fair, effective and timely enforcement that protects investors from coast to coast,” she added.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.