Why entities are sharing info on disciplined registrants

01 MOU allows information sharing sooner

Disciplined IIROC members who want to sell insurance in B.C. may now find it harder to do so.

A memorandum of understanding (MOU) between IIROC and the Insurance Council of B.C., announced June 20, allows joint enforcement investigations and information sharing about disciplined registrants, thus preventing registrants—of either organization—from flying under the regulatory radar.

This announcement came days after Advisor.ca revealed that several permanently banned reps were still authorized to sell insurance after being banned (to read the investigation, go to advisor.ca/banned).

Commenting on the MOU, Andrew Kriegler, IIROC’s president and CEO, says investor protection “can’t be fulfilled in isolation” and is improved with regulatory co-ordination.

Bernard Pinsky, a partner at Clark Wilson in Vancouver, applauds the MOU as an investor protection measure, especially with the rise of securitized products, including those that are insurance-related. The Insurance Council of B.C. tells us it has about 35,000 registrants. “That’s a lot of people and […] a lot of different products,” says Pinsky.

Sean Boyle, a partner at Blake, Cassels & Graydon in Vancouver, says the MOU addresses the practical issue of investigating advisors with multiple registrations. He explains that investigations are typically confidential initially, because the investigated person is presumed innocent. The MOU clears that hurdle.

Confirming as much, Rob Tanaka, director of policy and investigations at the Insurance Council of B.C., says, “With IIROC, we were looking at how [to] get information sooner, so that we can identify risk […] sooner.

He adds: “If there’s an insurance licensee that’s being investigated for […] a suitability issue on the IIROC side, we want to be aware of that and determine [if] we need to do anything. Maybe we don’t; it depends on the situation. But at least [we] have that information to make a decision.”

He says the MOU formalizes information sharing between the two regulators, thus promoting consistency. IIROC has more than a dozen such agreements with regulators worldwide and is pursuing more, as is the Insurance Council of B.C.

For instance, the Insurance Council of B.C. and the Financial Planning Standards Council (FPSC) signed a MOU in May, also to share discipline-related information on dual licensees. (FPSC certifies the CFP designation.)

Damienne Lebrun-Reid, FPSC’s director of standards and enforcement, says the MOU provides “the ability, with consent of the complainant, to share the complaint at an earlier stage.” Regulators wouldn’t usually gain such information until disciplinary reports or news releases are published, she says.

The MOU also presents “an opportunity for [the] B.C. insurance council to alert complainants […] to our mandate, and for us to do the same”—in effect, educating consumers about multiple regulatory bodies so they don’t prematurely abandon their research on registrants.

The only downside to sharing information, says Boyle, is the potential for multiple proceedings and the associated legal costs. To streamline the process in such cases, he suggests “deference to a lead prosecutor” so that authorities work together “to ensure the different resources are being allocated appropriately.”

02 New IIROC guidance means greater diligence with senior clients

In May 2016, IIROC published Notice 16-0114, Guidance on compliance and supervisory issues when dealing with seniors, to address an ongoing industry concern as the population ages. The notice covers PoAs, client communication, KYP/KYC, suitability and establishing a client’s “trusted contact person.”

“Dealing with seniors is one of the biggest issues for advisors,” says Boyle. Indeed, IIROC’s published sanctions regularly involve retired clients and suitability.

Subsequently, IIROC focuses on firm supervision. “The last few years, I’ve seen a marked increase in the number of failure-to-supervise investigations,” says Boyle.

With this guidance, IIROC’s “pursuing the idea that the branch and the registered individuals are […] a first line of defence to protect the market and the client.”

The guidelines encourage members and reps to obtain copies of and verify clients’ PoAs and to remain attentive to red flags therein (such as a lack of connection between the client and the named attorney).

Further, where firm policies include dealing with a client’s trusted contact person, the policy should require that person not be involved in the account’s financial decisions, and should also address when to contact this person.

“Where firms and registrants get in trouble is where they […] confuse the suitability of the elderly client with the suitability of the person with the power of attorney,” says Boyle, giving the example of an attorney who invests to suit himself as beneficiary, not his parent. Advisors may identify more overt account mismanagement by attorneys. Both are reasons to consult the trusted contact, and Boyle suggests that person could be a lawyer, accountant—or where a son or daughter is acting as attorney—the other siblings.

Of course, establishing a trusted contact adds complexity and compliance costs for firms, says Boyle, as well as risk. “If the firm doesn’t get that [trusted contact] information at the start, will [the firm] be blamed at the end of the day?” he asks.

Pinsky highlights the suitability guidelines. Some senior clients “don’t have a long time horizon, and therefore can’t absorb losses,” he says. “Suitability and investment objectives should be reviewed every year—if not more often, depending on the [client]’s health.” That suggestion aligns with the communication guideline of more frequent contact with senior clients.

The guidelines acknowledge that it’s difficult for advisors to serve seniors looking for both income generation and capital preservation in a low-rate world. But they warn reps to be vigilant of seniors’ vulnerability. Assess KYC and account investment information, such as portfolio composition and risk, to see if both generating income and preserving capital are possible.

Pinsky says the guidance, though aimed at one group, is a good review for dealing with clients. It’s timely, considering the generational transfer of assets and the potential for seniors’ incapacity. “There’s […] a lot of money at stake.”