Montreal-based Industrial Alliance Securities Inc. (IAS) has settled regulatory allegations of supervisory lapses that resulted in inappropriate trading of leveraged exchange-traded funds (ETFs) by a couple of its representatives.

The Investment Industry Regulatory Organization of Canada (IIROC) published a hearing panel decision that was reached in October 2015, which saw the panel accept a settlement agreement between IIROC staff and the firm that will see IAS pay a $75,000 penalty and $15,000 in costs.

In settling the case, IAS admitted that it “failed to take reasonable measures” to ensure that two of its reps and some of its supervisors properly understood the features and risks inherent in leveraged ETFs.

“It appears that as of 2009, specific information was available regarding the complexity and the risk of volatility of the products concerned,” the IIROC hearing panel decision states. “Yet, IAS did not immediately institute an appropriate policy respecting leveraged ETFs and delayed the transmission of adequate knowledge to its two representatives and to its supervisors.”

This negligence resulted in the two reps making unsuitable recommendations in these products to two clients, the decision adds. The IIROC hearing panel also found that IAS failed to intervene when one of its reps made an excessive number of trades in two client accounts, which, it found, “was not within the bounds of good business practice.”

Paul Milot, one of the two reps involved, settled regulatory allegations against him in connection with leveraged ETF trading in 2014, admitting he didn’t fully understand their features, which resulted in an excessive concentration in these products in one client’s account. In that case, he was fined $20,000, costs of $2,500, subjected to six months of close supervision and ordered to complete the Conduct and Practices Handbook course.

In approving the deal with IAS, the IIROC hearing panel noted that the firm has no prior record of supervisory lapses; that the affected clients received compensation; and that the firm co-operated with IIROC’s investigation. Furthermore, it concluded that the proposed settlement imposed penalties that were comparable to the sanctions imposed in similar cases.

See also: Leveraged ETFs may not be for ‘average’ clients