Investors support flexible enforcement: IIROC poll

Canadian investors support alternative approaches to enforcement that would encourage early settlement of disciplinary cases, finds an IIROC survey.

The survey was part of IIROC’s public consultation to get stakeholder input on proposals published earlier this year. Those proposals include a program to deal with minor rule infractions, whereby individuals would be fined $2,500 and firms fined $5,000, and a program to settle cases at an earlier point in the disciplinary process, once sufficient facts are known.

Of note to advisors and firms, investors’ responses to sample situations indicate that they appreciate cooperation with enforcement, combined with compensation or corrective action. For example, in the case of an unsuitable investment, only 23% of respondents thought the case should proceed to a full disciplinary hearing when the advisor and firm cooperate with IIROC, apologize and compensate the investor for losses. In fact, more investors thought a case of blank signed forms, with clients’ verbal consent, should proceed to a full hearing (26%).

Overall, almost two-thirds of those polled (63%) support more flexibility in dealing with minor infractions, especially where a breach is inadvertent, unintentional or results in little or no investor harm.

However, investors felt IIROC’s proposed fines for minor infractions were too low: 45% said $2,500 was too little for individuals, and 63% said $5,000 was too little for firms. Further, more than half of respondents (56%) thought IIROC should name-and-shame in all cases of rule breaches.

On the proposed early settlement program, more than three-quarters of investors (76%) are supportive, but they showed less support when asked about reduced penalties. While 57% support reduced penalties for individuals and firms that settle early, nearly one-third (31%) are opposed.

Most respondents agreed that formal disciplinary hearings should proceed for serious violations (70%-85% agreement, depending on the situation). For example, violations causing significant investor harm or demonstrating a history of disciplinary issues require a formal hearing, investors indicated.

Supervision failures garnered the least agreement. Specifically, 70% of those polled thought a formal hearing should result when firms fail to supervise staff. Though that figure represents a majority, the lower support relative to other violations might indicate investors don’t fully understand the regulatory significance of supervision. (In a separate section of the poll, 55% of respondents thought a suitability case with a supervision failure should proceed to a full hearing, despite the poll stating that the supervision failure was a breach of IIROC rules.)

Overall, investors surveyed said that implementing the changes would be important to improve IIROC’s effectiveness in enforcement. However, any subsequent increase in investors’ confidence resulting from the changes was relatively low. About one-third (32%) said the changes would increase their confidence in how well the industry is regulated.

The poll and comments received on the proposals will be considered in refining alternative discipline proposals, says an IIROC release.

For full details, including sample enforcement situations, see the IIROC survey.

About the survey: In 2017, IIROC created an online panel of 10,000 investors for public input on policy development. From this panel, the Strategic Counsel conducted an online survey between March 7 and March 16, 2018, of 1,001 investors proportionate to population distribution. For this survey, more than one-fifth of respondents were retired, and almost half (47%) had $99K or less in investments.