London, U.K.–based order-execution-only (OEO) dealer Fortrade Canada Ltd. has been fined $2 million for making recommendations to clients, which contravenes Canadian Investment Regulatory Organization (CIRO) rules.
A CIRO hearing panel imposed the fine as well as other sanctions. Fortrade Canada must also pay more than US$700,000 to clients with unresolved recommendation-related complaints, and must set up a US$6-million fund to pay eligible clients who make a claim against the firm.
The firm admitted in a settlement agreement to making recommendations to OEO accountholders, failing to establish and maintain a compliant supervisory system, and failing to retain adequate records.
As the settlement agreement explained, “the majority of Fortrade clients were unsophisticated investors, with income levels of less than $50,000, liquid assets of less than $25,000 [and] limited trading knowledge,” with no previous experience in trading contracts for differences (CFDs), a type of derivative.
According to the agreement, telephone records from a one-month period in 2022 “showed a pattern of Fortrade agents making recommendations to clients.” Statements from agents included “I have a new opportunity on something, if you’re interested in diversifying in Tesla…” and “I see that you traded commodities before with us and if you’d like to try them again, I just received an opportunity on wheat.”
Emails from Fortrade agents to clients also included recommendations concerning CFD trades, the settlement agreement stated.
As a condition of its settlement with CIRO, Fortrade Canada must retain recordings of telephone calls with Fortrade clients for seven years from the date of each call. Fortrade also agreed to pay costs in the amount of $100,000.
A temporary order against the firm will remain in effect until Fortrade has paid its fine, costs and client payments, and has notified eligible clients about how to make a claim for funds.