Cases involving senior investors are capturing a rising share of the attention of enforcement staff at the Mutual Fund Dealers Association of Canada (MFDA).
The MFDA has released its latest annual report on enforcement, which indicates that one third of the disciplinary proceedings brought in 2014 involved seniors, or otherwise vulnerable clients, up from 25% in 2013.
Moreover, only 17% of cases that were opened during the year involve seniors — indicating that these sorts of cases are almost twice as likely to move from the initial case assessment stage to actual disciplinary action.
Cases involving seniors and other vulnerable clients (the MFDA defines seniors as investors aged 60 and over, and vulnerable persons are identified by characteristics such as language barriers, limited literacy, disability issues, or very limited financial resources) is a top priority for both MFDA enforcement, and the regulator generally.
Overall, enforcement activity declined during 2014, the report indicates. The number of enforcement cases started during the year ticked down slightly from 426 cases in 2013 to 418 cases in 2014. The MFDA closed 373 cases during the year, down from 483 cases in 2013 and 479 cases in 2012. And, the number of cases that were escalated to prosecution also declined year over year, from 65 cases in 2013 to 48 cases in 2014. Additionally, the MFDA issued 90 warning letters and 95 cautionary letters in 2014, down from 137 and 138, respectively, in 2013.
The self-regulatory organization reports that it concluded 50 hearings in 2014, including 20 settlements and 30 contested hearings. These prosecutions resulted in 19 permanent prohibitions and 20 suspensions, the MFDA reports. They also generated total fines of $7.55 million and total costs of $279,500 against both dealers and reps.
As with most regulators in Canada, the vast majority of those fines go uncollected. The MFDA reports that just $63,500 of the fines levied in 2014 were against reps that are still registered, and that all of these fines have been collected. Of the $7.49 million in sanctions against reps that have left the industry, just over $100,000 has actually been collected.
In terms of the underlying causes of enforcement activity, the MFDA reports that falsification/misrepresentation is the top source of both case assessment files and actual disciplinary proceedings. Using blank signed forms, and suitability issues are among the other top sources of both new cases and prosecutions; and, outside business activities/dual occupations is a leading reason for actual proceedings, even though it doesn’t rank that highly as a source of new cases.
The report also details the initial results of the whistleblower program that the MFDA established in 2014. It generated eight tips and resulted in four cases being opened during the year. Unlike the whistleblower program that is currently being proposed by the Ontario Securities Commission (OSC), the MFDA’s program does not pay financial rewards to tipsters.
“The efforts of the MFDA enforcement department, as outlined in this report, ensure that members and approved persons who do not comply with regulatory standards are sanctioned accordingly. These sanctions have deterrent and preventative effects which contribute to the maintenance of the high level of regulatory compliance found within the MFDA’s membership,” said Mark Gordon, president and CEO of the MFDA.