Disciplinary decisions by self-regulatory organizations should provide explanations about how penalties are calculated, according to a British Columbia Securities Commission (BCSC) hearing panel decision handed down Sept. 12 in connection with a case involving a former mutual fund rep.
Both the rep, Rodney Warren, and the staff of the Mutual Fund Dealers Association of Canada (MFDA) appealed the penalties doled out by an MFDA hearing panel against Warren in October 2016.
The MFDA panel ordered Warren be suspended for 90 days, fined $100,000, and ordered to pay $10,000 in costs, after it found he violated MFDA rules by failing to ensure that his leverage recommendations were suitable for two clients.
Warren appealed the fine and costs order against him, while MFDA staff argued that he should have been given a three-year suspension.
The BCSC panel largely upheld the ruling by the MFDA panel. It declined to lower the fine, or to increase the suspension, but it did throw out the costs order.
In its decision, the BCSC panel says that SRO hearing panels need to provide more detailed decisions spelling out their reasons for imposing particular sanctions.
"The MFDA panel's reasons for decision show the rationale behind its conclusions that Warren committed serious misconduct contrary to multiple MFDA policies and Warren's member firm's policies. However, the MFDA's explanations for its sanctions regarding Warren are minimal," the BCSC panel says.
"More complete explanations of how the panel applied the factors relevant to sanctions to the evidence should in future be provided by SRO decision makers in this regard," the BCSC panel concludes.
Nevertheless, the BCSC found that the MFDA panel's reasons were extensive enough for it to conclude that the sanctions are reasonable. "Notwithstanding our concerns about the absence of sufficient explicit reasoning … we find the reasons are sufficient to permit us to determine whether the MFDA's conclusions are reasonable in light of all of the evidence ..." the BCSC panel says.
The BCSC panel found that the MFDA panel was reasonable in the penalties it ordered in the case. "We find that the MFDA panel did not overlook material evidence, make an error in law or proceed on an incorrect principle. The MFDA panel considered the MFDA penalty guidelines and concluded that both a lengthy suspension and a significant monetary penalty were appropriate in all the circumstances," the BCSC panel says, and the penalties set by the panel in this case, "are within the range of suspensions and monetary penalties imposed in comparable cases before the MFDA and other relevant SROs."
Although the BCSC declined to intervene with the major components of the sanctions (the fine and the suspension) it did strike down the costs order against Warren, citing the lack of evidence supporting the order.
"We agree with Warren that the costs award of $10,000 cannot stand and we order that the MFDA order be varied accordingly," the BCSC panel says.
"There was no evidence of the costs incurred by the MFDA in this matter. While an award of costs is in the discretion of the MFDA panel, it is an error in law for a panel to make an award of costs on no evidence whatsoever."
Respondents in disciplinary proceedings should also have the opportunity to bring their own evidence to challenge costs orders, the BCSC panel adds.
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