November 7, 2019
Director, Enforcement Litigation
Investment Industry Regulatory Organization of Canada
Suite 2000, 121 King Street West
Toronto, Ontario M5H 3T9
Ontario Securities Commission
Suite 1903, Box 55
20 Queen Street West
Toronto, Ontario M5H 3S8
RE: IIROC Notice 19-0076 Minor Contravention Program and Early Resolution Offers
FAIR Canada provided comments to you by letter dated July 3, 2019 on the proposed amendments to the Investment Industry Regulatory Organization of Canada (IIROC) Consolidated Enforcement, Examination and Approval Rules to adopt the Minor Contravention Program (MCP) and the proposed IIROC Staff Policy Statement on Early Resolution Offers (ERO) as described in IIROC Notice 19-0076 dated April 25, 2019.
We have not received a reply nor have we seen any further public notice from IIROC or the OSC regarding this matter. We are following up with you to inquire as to the status of these proposals and whether our concerns have been addressed.
As a reminder, FAIR Canada expressed concerns regarding the MCP proposal as it would introduce a process for regulation of misconduct that will not result in a public record of the Approved Person/registrant having been disciplined that is accessible by clients, prospective clients or prospective investment dealer employers of the Approved Person/registrant. FAIR Canada questions how such an outcome is in the public interest and consistent with IIROC’s and the OSC’s stated goals of protecting investors and supporting healthy Canadian capital markets.
We also advised that we could not support the proposed ERO policy as it permits a discounted sanction in circumstances where there is not full disgorgement of any profits made and full compensation to investors for any losses, including interest and fees incurred, due to the misconduct.
It is our recommendation that it should be a condition requisite for eligibility for resolution of a rule contravention by ERO or the MCP that any client harmed by the rule contravention has received full compensation for loss and that any commissions or fees incurred have been repaid to the client.
Lastly, FAIR Canada recommended that IIROC amend its Rules to require open court principles to apply to hearings before the IIROC Hearing Committee when the Committee considers proposed settlements of disciplinary proceedings, whether pursuant to the MCP, the ERO Staff Policy Statement or otherwise. We do not believe that it is in the public interest for such hearings to be held in camera, which is currently the routine procedure for every case, rather than in exceptional circumstances requiring in camera hearings to preserve the rights of litigants to a fair hearing or to address requests for protection of privacy for the victim(s) of the misconduct. Routine in camera settlement approval proceedings, where a settlement agreement is negotiated in private between a registrant that has engaged in misconduct and the regulator is then reviewed and approved by the tribunal in private, undermine the public confidence in the integrity of the enforcement of securities regulations. FAIR Canada recommends that IIROC should address this issue in a manner consistent with its stated vision of being known for its “integrity, transparency and fair and balanced solutions.”
We would be pleased to discuss this matter with you further at your convenience. Feel free to contact Ermanno Pascutto, Executive Director, FAIR Canada at 647-256-6693 / firstname.lastname@example.org or Douglas Walker, Senior Policy Counsel, FAIR Canada at 647-256-6690 / email@example.com
Senior Policy Counsel
Canadian Foundation for Advancement of Investor Rights (FAIR Canada)