From the Regulators

Regulars say false and misleading applications pose a serious problem

By James Langton |


Canadian securities regulators are calling out industry firms and personnel for submitting false or misleading registration applications.

In a notice published on Thursday, the Canadian Securities Administrators (CSA) says there's a "serious problem" with false registration applications. "Unfortunately, false or misleading applications for registration have been a significant and recurring issue since the early years of securities regulation in Canada," the notice says.

Regulators note that the problems can include omitting relevant information, falsifying information and miscasting information. The notice stresses that carelessness and misunderstanding the requirements are not adequate excuses for these lapses.

Disclosing damaging information doesn't necessarily mean that registration will be refused, the notice says. But failing to disclose damaging information that later comes to light will always be a red flag for regulators. Not only will a false or misleading application affect registration status, the CSA notice says; it "may constitute a provincial or criminal offence attracting significant sanctions."

"The CSA will continue to hold individuals and firms accountable for false or misleading applications," said Louis Morisset, chairman of the CSA and president and CEO of the Autorité des marchés financiers, in a statement.

In addition to calling on prospective applicants to be truthful on their applications, the CSA is demanding that dealers ensure that their due-diligence processes are adequate so that the personnel they sponsor are submitting comprehensive, accurate registration applications.

"Firms are gatekeepers in the registration regime," says Debra Foubert, director of the compliance and registrant regulation branch at the Ontario Securities Commission, in a statement, "and, as such, are responsible for assessing that any applicants they sponsor have the required proficiency, solvency, and integrity, and are suitable candidates to represent their firm. Firms also have an ongoing responsibility to monitor their representatives' suitability for registration. We strongly encourage firms to assess their policies and procedures in both of these areas."

The CSA's notice also sets out guidance on some of the specific issues of inadequate disclosure that the regulators find frequently on registration applications, such as disclosures about criminal history and past employment history, as well as financial disclosures.

In a separate notice, the CSA announced the introduction of new reporting forms designed to ensure that firms are properly overseeing reps that are operating under added supervisory conditions, known as "close supervision" and "strict supervision."

These conditions are usually imposed either to address previous misconduct or regulators' concerns about suitability for registration. Close supervision requires firms to monitor daily trading and compile monthly reports on this activity. Reps subject to strict supervision must have their trades pre-approved and their trading activity documented monthly.

Effective immediately, the CSA is adopting new reporting forms that are intended to make it easier for the regulators to assess "the nature and quality" of the enhanced supervision that firms are providing.

The new reports will also allow regulators to "determine the volume of supervised trading activity being undertaken," which may be relevant when a rep seeks to have the additional supervisory conditions lifted.

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