The board of directors of the Investment Dealers Association has approved amendments, effective immediately, which will give the association better control over firms that encounter operational problems while making over their businesses.

The IDA is extending the Early Warning Level 2 rules to allow discretionary business restrictions to apply to firms that encounter serious operational difficulties, such as failing to maintain an adequate system of books and records.

The IDA says this would permit it to exercise its regulatory authority and intervene on a timely basis by imposing business restrictions on any expansion plans of firms experiencing serious record keeping or operational difficulties. “The regulatory alternative available is suspension of membership if there is the possibility of financial loss to the public.”

The IDA says the rule change comes about because a number of firms have experienced significant operational problems because of systems conversions, mergers, entering new businesses or staff turnover. “At times, these problems have been so significant that the accuracy of capital and other reports has been questionable.”

The IDA says that generally, under these circumstances, members have not made further significant changes to their business until the problems were resolved. “However, the IDA has not been in a position to prevent the member from making further significant changes. The IDA’s only course of action has been to monitor the firm’s condition closely and suggest that the firm refrain from making significant business changes until their problems were resolved.”

The IDA notes there is a need to balance the timeliness of applying discretionary business restrictions on any firm and affording firms’ the opportunity to have such restrictions reviewed independently. It says, “The IDA rules should permit the immediate application of discretionary business restrictions when warranted and allow any member firm to request a review, and make submissions before, at least two members of the applicable District Council within 10 business days of the request.”