Scotia Capital has agreed to a $500,000 IIROC fine over the conduct of its subsidiary, DWM Securities, now known as HollisWealth.
The firm admitted that from Sept. 2005 to June 2013, DWM “failed to establish and maintain a system of controls and supervision that was adequate to ensure that certain clients were qualified to purchase investment funds offered pursuant to prospectus exemptions.”
IIROC documents state DWM advisors sold Dynamic Exempt Market Funds (at the time, managed by DundeeWealth subsidiary GCIC) and third-party exempt funds to almost 10,000 clients during the period in question.
Of those clients, 1,710 had account information that “did not support the clients’ qualifications for a prospectus exemption.” IIROC says the affected clients experienced about $16.7 million in net gains and $4.5 million in net losses. About 594 of the affected clients were in net loss positions, with most out less than $25,000. Only one client lost more than $100,000. Those net-loss clients were served by 72 Canadian advisors.
As a result, IIROC has fined Scotia Capital $500,000. In addition, any advisor who sold exempt products without proper supporting information, and their branch managers, must re-write the Conduct and Practices Handbook exam. (Branch managers will also have to “write or re-write a relevant industry course on exempt market products.”)
Scotia will also fine these advisors amounts ranging from $2,500 to $30,000, for a total of $440,000. Scotia and IIROC have agreed that amount will be donated to charity.
Scotia will also require advisors whose clients were not documented to be qualified, and who were in net loss positions due to the exempt products, to reimburse Scotia “in percentage amounts ranging from 20% to 50%, for remediation payments made to clients.”
In Feb. 2011, Scotiabank paid $2.3 billion to acquire DundeeWealth. IIROC says 91% of conduct in question occurred prior that purchase, and all conduct happened prior to the two firms’ amalgamation in November 2013.
Scotia Capital self-reported the lack of adequate documentation to IIROC in December 2013, having identified the problem in 2012. IIROC states the firm’s review took more than a year to finish “due to its comprehensive scope and complexity.”
As part of its remediation process, HollisWealth introduced a new mandatory Prospectus Exemption Certificate in June 2013 for clients, advisors and branch managers to sign each time a client purchases an exempt product. Scotia will also report back to IIROC on the status of its remediation plan by October 2015.