A trio of Canadian Imperial Bank of Commerce’s (CIBC) subsidiary dealers will pay more than $73 million in compensation to clients and another $3 million to the Ontario Securities Commission (OSC) as part of a no-contest settlement agreement in connection with client overcharging that occurred for more than 10 years.

An OSC hearing panel approved the no-contest settlement on Friday with CIBC World Markets Inc., CIBC Investor Services Inc. and CIBC Securities Inc. to resolve allegations that lapses in internal controls and supervision allowed the firms to overcharge certain clients, including fee-based accountholders who also paid embedded trailers and clients who qualified for, but were not put into, lower-cost versions of certain funds.

“These control and supervision inadequacies continued undetected for an extended period of time,” the settlement notes. “The CIBC dealers discovered the control and supervision inadequacies following inquiries made and/or reviews conducted by the relevant CIBC dealers.”

The firms discovered the overcharging, which stretched as far back as 2002 in some cases, and reported it to the OSC in 2015, the settlement states. The regulator notes that there was no evidence of dishonest conduct at the firms and it does not allege that there was any improper conduct.

As part of a no-contest settlement, the CIBC dealers do not admit or deny the OSC staff’s allegations. They also agree to voluntarily make a $3-million payment to the OSC, to pay $50,000 in costs and to enhance their internal controls to prevent a recurrence of similar overcharging in the future.

The settlement also details the firms’ plans to compensate investors, which is expected to amount to more than $73 million. It calls for the firms to repay the excess fees to clients that were harmed by the overcharging, plus opportunity costs (which in most cases amounts to 5% per annum).

The OSC hearing panel notes that the compensation plan was not filed as part of application for approving the settlement agreement, but that it did review the plan.

“We are satisfied with the terms of the compensation plan and the process and methodology that have been employed to identify the affected clients and to calculate the amounts due to them,” the OSC hearing panel says in its reasons for approving the agreement.

“Strong compliance systems are critical to investor protection and market confidence,” adds Jeff Kehoe, director of enforcement with the OSC, in a statement following approval of the settlement. “We expect registrants to have effective controls in place to deal fairly with clients with regard to fees, and to correct non-compliant conduct in a timely manner.”

The OSC notes that this is the sixth no-contest settlement that has been approved since the policy of allowing no-contest settlements was introduced in 2014 and that these deals have produced approximately $270 million in compensation to investors.

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