This article was written by Ellen Bessner and Aaron Gold (student-at-law at Babin Bessner Spry LLP).
Registered advisors are mistaken if they believe that, after committing a regulatory breach, they can avoid penalties by leaving the securities industry. In fact, the penalties will invariably be worse.
A considerable number of cases brought by the self-regulatory organizations (SROs) are uncontested because, instead of cooperating with the SRO’s investigators and lawyers throughout the investigation and attempting to negotiate a reasonable penalty, advisors choose to be unresponsive and uncooperative. A hearing is then conducted in the advisor’s absence, and the SRO staff prove the breaches and obtain more severe penalties. Because the registrant didn’t appear at the investigatory interview or hearing, additional penalties are imposed for their “failure to cooperate.” These uncontested cases result in the most significant monetary penalties and are commonly accompanied by a permanent ban.
The monetary penalties often remained uncollected, until a number of provinces amended their respective securities legislation to permit the SROs to enforce these sanctions in court — a game changer for the SROs, as well as the unassuming advisor.
In Ontario, since May 2017, the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) have had powers to enforce their decisions by entering their orders as judgments of the Superior Court of Justice. If registrants left the securities industry but had income or assets in the province, their wages could be garnished and their assets seized to satisfy the SRO’s order.
It gets worse.
In a decision released last week, the Court held that these legislative powers apply even if the conduct at issue in the hearing panel’s decision occurred before the effective date of the legislation. So, if you breached the rules in Ontario before May 2017, the SRO could have the penalty entered as a court order, even though the breach occurred before the law was amended.
The Court’s decision confirms the scope of the SROs’ powers and highlights the importance of cooperating with the regulators throughout the disciplinary proceedings.
While registrants might be able to “get out of Dodge” with regard to the SROs, they cannot do so with the courts. It is far better for registrants to negotiate the best deal they can with SRO staff than be stuck defending themselves in court when the judge is asked to enforce a significant penalty imposed in their absence.