penalty card

Investor complaints are soaring, according to the latest data from the Canadian Investment Regulatory Organization (CIRO).

In its first enforcement report, the newly-merged self-regulatory organization detailed a sharp rise in complaints in both its investment dealer and mutual fund dealer divisions.

The fund dealer division received 2,541 complaints in the most recent fiscal year (to March 31), up from 1,635 the previous year — a jump of more than 50% year over year, and compared with the average of the previous four years.

Complaints to the investment dealer division rose to 1,563 in fiscal 2023, from 1,053 in fiscal 2022.

Across all sources, including reports through the industry’s ComSet system, the public, other regulators, and the media/whistleblowers, the number of investment dealer complaints is up from last year. Among fund dealers, almost all complaint activity came from the industry reporting system, METS.

The top issue for both sides of the industry was unsuitable investments, which accounted for 31% of fund dealer complaints and 26% of investment dealer complaints. Whether the increase in complaints, which are often strongly affected by market conditions, results in greater enforcement activity remains to be seen.

The number of investigations completed by CIRO’s investment dealer division was up in 2023, as 91 investigations were carried out in 2023, up from 76 the previous year.

On the fund dealer side, the number of investigations dropped from 133 in the previous year to 96 in 2023.

Actual disciplinary activity was relatively flat in fiscal 2023.

Among investment dealers, there were 20 decisions involving individual reps handed down in 2023, down from 23 decisions in the previous year. And, there were 11 enforcement decisions involving firms, up from eight in 2022.

A total of just over $1 million in penalties was handed down against firms in 2023, compared with $1.54 million in 2022.

For individual reps, the penalties issued spiked to $14.7 million from $2.8 million in 2022 — including $9.2 million in fines and almost $5 million in disgorgement ordered, up from $2.1 million and just over $200,000, respectively, in fiscal 2022.

The sanctions imposed in 2023 were boosted by a handful of cases that involved large penalties and disgorgement orders — including one case that featured a $5 million fine, another case that included almost $6 million in disgorgement and fines, and a case with a fine of almost $2.5 million.

With the large jump in penalties levied against individuals, the collection rate plunged to 4% of those sanctions — reflecting the fact that the SRO doesn’t expect to be able to collect in the cases with the heftiest sanctions (representing more than $13 million in fines, disgorgement and costs).

On the fund dealer side, the SRO handed down 71 decisions against individual reps in 2023, little changed from 75 in 2022.

Total monetary sanctions in those cases also declined a bit, from $11.7 million to $8.1 million, year over year.

There were also six disciplinary decisions against fund firms in fiscal 2023, up from three decisions in 2022. On the dealer side, total sanctions climbed from $940,000 to $1.36 million year over year.

“This past year, we pursued enforcement proceedings that addressed a wide range of conduct to prevent and deter misconduct, improve industry standards and strengthen market integrity,” said Elsa Renzella, CIRO’s senior vice-president, enforcement and registration, in a release.

Alongside the enforcement stats, the report also detailed the work that CIRO has begun to harmonize the enforcement function between the investment dealer side and fund dealer side of the SRO — including work on harmonized sanction guidelines, reviewing case selection policies, and developing a centralized complaint intake process.