IIROC has launched a consultation on its approach to both minor violations and early resolution, with an eye to making enforcement “more timely and proportionate to the offences,” a release says.
The SRO has proposed:
- A program to deal with minor rule infractions that bypasses a formal disciplinary hearing and results in a Minor Contravention Program Notice (MCP notice). Individuals would be fined $2,500 while firms would be fined $5,000. Admitting to the rule breach would not reside on the individual’s or firm’s formal disciplinary record, says IIROC, and the public notice of the misconduct would remain anonymous: it would include information about infractions and fines but not the names of individuals and firms. However, while admissions made “will not form part an official disciplinary record, they will be on file,” Elsa Renzella, IIROC senior vice-president of registration and enforcement, told Advisor.ca.
For this program, a minor violation is defined in the consultation as “contraventions of IIROC requirements that are isolated,” and those that “result in limited or no harm to the public and the capital markets.”
One example of such a violation, says Renzella, involves discretionary trading. Advisors could engage in the practice in a way that’s “clearly against the rules, with the respect to one, maybe two, clients, and several trades,” she says. “The clients could be aware of this but approve of the activity because it’s convenient, but it’s nonetheless a breach of the rules.”
The SRO would ensure that, when looking at the trading activity, no “significant harm” had been done in terms of investors losses, she adds. In this scenario, “The underlying trading could be suitable, but there would be a need to take some form of action,” Renzella says.
When determining whether an individual or firm is eligible for an MCP notice, IIROC says in the consultation that it would check past disciplinary history: if there’s a past violation, the SRO will review “the age and relevance of the prior disciplinary record,” and MCP notice disqualification is possible. The consultation says these notices are more applicable to individual versus firm misconduct, and that they likely wouldn’t be offered more than once to an individual or firm.
IIROC would also consider whether a violation is technical and unintentional, and whether it resulted in “limited or no benefit to the firm or individual engaged in the conduct, or any related parties.” If individuals or firms admit to and/or self-report infractions, that would also be considered, as would internal discipline by firms and any “corrective or remedial measures” that have been taken.
- A program to settle cases at an earlier point in the disciplinary process, once sufficient facts are known. The aim is to significantly reduce the time required to complete cases and encourage firms to take corrective action and compensate clients, the release says.
Currently, IIROC provides the options to either settle before a disciplinary panel or to have a full disciplinary hearing before a panel, which can result in significant fines, suspensions and permanent bans. This program would provide the option to settle earlier in investigations.
The SRO expects it will be more effective than current early settlement tools, such as the staff policy statement on credit for cooperation, and the enforcement mediation program.
For the proposed early resolution program, all types of violations are eligible, but IIROC will assess various criteria. For example, the SRO will look at whether subjects have demonstrated “proactive and exceptional cooperation,” and if clients will be or have been compensated.
This program would still involve acceptance of settlements by IIROC hearing panels, similar to current practices, but it would be applicable to “a broader set of cases in enforcement. It very likely deals with the more serious matters” than those eligible for the minor contravention proposal, says Renzella. The purpose of the early settlement proposal is to “resolve [eligible] cases in a timely way” where subjects are cooperative, she adds.
In terms of fines and sanctions, says Renzella, public notices will still be released. The potential benefit of being considered for this program for individuals and firms is “credit will be given,” leading to potentially lower fines and costs, but why that credit was given “will be transparent” in disciplinary notices. This program would save a lot of resources for IIROC, and reduce the burden on complainants and harmed investors, she adds.
To ensure timeliness, the consultation notes that “the time for acceptance of [early resolution] offers would be strictly time-limited,” and that late acceptance or rejection will lead to normal resolution.
Public comment on the proposals will be open for 90 days. IIROC will also get input directly from investors through an online survey of more than a thousand Canadians.
Following the comment period, IIROC will either revise its proposals or republish for further comment prior to implementation.
The proposals come after IIROC looked at best practices of other regulatory bodies, the release said.