The Investment Industry Regulatory Organization of Canada (IIROC) ramped up overall enforcement activity in 2016, but saw a decline in the number of cases against firms during the year.
IIROC published its annual enforcement report on Wednesday, spelling out its enforcement results over the past year. On many of the headline metrics, the self-regulatory organization increased its disciplinary activity. For instance, it handled a higher number of complaints compared with the previous year, carried out more investigations (up 10% from 2015), and launched more proceedings (up 25%).
At the same time, IIROC saw the number of prosecutions decline from 52 in 2015 to 46 in 2016. IIROC notes that it conducted more contested hearings in 2016, “some of which were still continuing in 2017,” which resulted in “a marginal decline in the total prosecutions.”
IIROC also saw a lower proportion of its investigations turning into prosecutions. It reports that 49% of its investigations were referred for prosecution in 2016, down from 59% in the previous year.
The decline in prosecutions all came in terms of cases against firms. In 2016, IIROC prosecuted 40 cases against individuals, which was unchanged from 2015. The amount of fines levied during the year against individuals increased to $2.7 million, and total monetary sanctions increased to $3.1 million. However, it also saw its collection rate against individuals decline to 8.3% from 15.8% in 2015.
IIROC is hoping that collection rate will improve in the years ahead, after the Ontario government announced that it plans to introduce legislation that will enable IIROC to pursue collections in court. PEI also granted IIROC that power in 2016: IIROC is seeking similar authority in the other provinces (it can already pursue collections in court in Alberta and Quebec).
“Not only did we complete more investigations in 2016, but we made significant progress in gaining new enforcement tools that will enable us to provide stronger protection for the investing public and collect more fines in the future from wrongdoers who evade paying the penalty for their misconduct,” said Andrew Kriegler, president and CEO of IIROC.
“IIROC is urging other provincial governments to make similar legislative changes so investors can be confident that investment firms and individuals will comply with IIROC’s regulatory rules and we can improve the effectiveness of our investigations and prosecutions bringing wrongdoers to justice,” Kriegler said.
The same issue typically doesn’t exist when it comes to sanctions against firms, where IIROC usually collects 100% of the sanctions it levies. In 2016, there were just six prosecutions of firms, down from 12 in 2015; and, total monetary sanctions dropped to just $425,000 from $1.6 million in 2015.
IIROC notes that suitability issues remain the most common disciplinary issue, accounting for 40% of its prosecutions. This includes several cases against advisors involving unsuitable sales of leveraged and inverse ETFs. Cases involving seniors represented approximately one-third of its prosecutions, IIROC says. It also reports that it pursued more cases involving manipulative and deceptive trading, prosecuted more misappropriation cases, and saw an increase in individuals who refused to cooperate with IIROC, resulting in permanent bans.
“IIROC’s enforcement activity this past year demonstrates our ongoing commitment to pursue cases where investors are harmed and seek sanctions that send a strong regulatory message to deter future wrongdoing,” said Elsa Renzella, vice president of enforcement at IIROC.
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