FAIR Canada says “NO” to IIROCs watering down of enforcement regime and urges regulators to protect investors

FAIR Canada cannot support  IIROC Notice 19-0076 Minor Contravention Program and Early Resolution Offers on the basis that it does not serve the interests of retail investors and urges the CSA to reject the proposed changes.

What is the Minor Contraventions Program (MCP) and Early Resolution Offers (ERO)?

IIROC has proposed changes to the way it carries out enforcement with the goal of creating “a more efficient means to resolve cases”. The two proposals, the Minor Contraventions Program and Early Resolutions Offers, change the way IIROC staff are able to address wrongdoing.

The proposed Minor Contravention Program (MCP) would impose small fines of $5000 for each minor offense (rule contravention) made by individuals (called “Approved Persons”) who work in roles regulated by securities law that previously had a good track record in the eyes of IIROC. Similarly, the Early Resolutions Offers (ERO) seeks to expedite settlements earlier in the enforcement process, during the first stages of a formal investigation by IIROC. EROs usually result in lesser fines for offenders.

What do these proposals mean for retail investors?

To put it simply: these proposals do not do enough to protect investors.

IIROC has ignored previous recommendations made by FAIR Canada on this matter and continues to pursue ‘slap on the wrist’ punishments for offenders. Small fines for first offenders and lessened fines in expedited settlements are not a strong enough deterrent for wrongdoing, nor do they sufficiently protect retail investors. These proposals do not include any provision to compensate retail investors for losses, including commissions, interest, and fees as a result of wrongdoing and misconduct. For misconduct that IIROC resolves using the MCP there will be no public database for retail investors to research any past offenses or wrongdoing by the brokers (“Approved Persons”). The only information related to offenses that will be released to the public will be an anonymous (no offenders will be named!) quarterly and annual report released by IIROC.

Keeping the public in the dark about who perpetrates wrongdoing and misconduct will not allow retail investors to make informed decisions about how and with whom they will invest their hard-earned money.

What does FAIR Canada Recommend?

FAIR Canada believes that IIROC should act transparently and in the best interest of the public. FAIR Canada does not believe that the MCP and ERO serve the interests of retail investors, and we cannot support these proposals. Moving forward, we recommend that IIROC apply open court principles of law to enforcement proceedings, including any proposed settlement of enforcement matters by the MCP, ERO and otherwise. This means that the complete record of proceedings will be open and accessible to the public and the media. We believe transparency is the best way to protect retail investors and their hard-earned money.

If IIROC were to proceed with the proposals it should be a required condition for eligibility that:

  1. There has been full compensation paid to the client for any losses arising from the misconduct and any commissions or other fees charged to the client; and

  2. disgorgement of any fees or commissions paid to the dealer and Approved Persons.

To read our formal submission click here.

July 25, 2019