compliance / Mind_And_I

This article appears in the Mid-November 2020 issue of Investment ExecutiveSubscribe to the print edition, read the digital edition or read the articles online.

Certified financial planners and qualified associate financial planners accused of breaching their ethical and professional responsibilities will now have allegations against them made public before they face a disciplinary hearing panel.

FP Canada updated the FP Canada Standards Council Disciplinary Rules and Procedures with two key changes that took effect Sept. 1: FP Canada will now publish statements of allegations against certificants accused of breaching conduct standards as well as its decisions and reasons from disciplinary hearing panels.

Previously, FP Canada did not publish allegations prior to a hearing and published only summaries of hearing panel decisions.

“We are interested in having a strong enforcement process because we think that’s in the public interest,” says Damienne Lebrun-Reid, executive director, standards and certification, with FP Canada and head of its standards council.

Members of the public, Lebrun-Reid says, should know that financial planners are held to high professional standards — and sanctioned when they fail to meet those standards.

The changes make FP Canada’s enforcement process similar to those of the Mutual Fund Dealers Association of Canada (MFDA) and the Investment Industry Regulatory Organization of Canada (IIROC), both of which publish allegations against registrants as well as decisions and reasons from hearing panels.

There are key differences, however, in how the MFDA and IIROC approach enforcement. For example, both self-regulatory organizations give respondents something akin to a Wells notice before publishing any allegations.

Wells notices — which originated in the U.S. in the 1970s — are delivered to a respondent by a securities regulator at the conclusion of an investigation into alleged misconduct. These notices outline the charges the regulator plans to bring against the respondent to give the respondent an opportunity to open settlement negotiations or argue why the charges should be dropped.

Data indicate that Wells notices result in a substantial number of charges being dropped — at least in the U.S. The Wall Street Journal reported that 20% of Wells notices issued by the U.S. Securities and Exchange Commission in the two years ended September 2012 led to cases being dropped — thus sparing respondents from the reputational damage of public allegations.

Although Wells notices are not part of FP Canada’s enforcement process, Lebrun-Reid says, certificants have ample opportunity to avoid public allegations. Upon receiving a complaint about a certificant’s conduct, FP Canada notifies the certificant and commences a 90-day initial review.

“We’ll have a back and forth with the certificant at that time to determine whether or not [a complaint] will get to an investigation,” Lebrun-Reid says. “The certificant has the opportunity to demonstrate to us why an investigation isn’t required.”

If FP Canada staff determine the complaint amounts to a proper allegation of misconduct, FP Canada launches an investigation into the matter, which typically includes interviews with the certificant, the complainant and any witnesses.

“When a certificant is subject to an investigation, they get a letter from us that sets out the allegations that the investigator has been authorized to look into,” Lebrun-Reid says. “[The letter is] very specific. It will say [something like]: ‘Here are the four allegations we are going to be investigating and you have an opportunity to respond to.’”

The certificant then is asked to provide a written response to each allegation and provide any supporting documents related to their response.

“The certificant has the opportunity at the initial review and during the investigation to essentially deny or indicate why the allegation shouldn’t proceed,” Lebrun-Reid says.

At the conclusion of an investigation, a report is delivered to FP Canada’s independent conduct review panel, which then determines whether the matter should be closed, closed with a confidential letter of guidance and advice, or escalated to a disciplinary hearing.

If the panel determines the complaint should proceed to a hearing, a statement of allegations is served to the certificant within 45 days and published on FP Canada’s website within five days of being filed.

Ellen Bessner, a lawyer with Toronto-based Babin Bessner Spry LLP who represents financial planners in enforcement proceedings, says FP Canada’s enforcement process doesn’t appear to give certificants a fair opportunity to avoid damaging public allegations.

Although certificants are aware of the allegations made against them at the onset of an investigation, they don’t know which of those allegations — if any — will remain a concern at the conclusion of an investigation, Bessner says. For example, an investigation into four allegations may find that two of them were unfounded.

“FP Canada shouldn’t be making anything public until they give the certificant an opportunity to consider what the investigation has yielded,” Bessner says.

Robert Keller, a securities lawyer with Los Angeles-based Keller Law who previously worked in IIROC’s enforcement division and whose current practice includes enforcement defence, says it’s “rare” that enforcement staff publish a statement of allegations with charges that are completely unfounded, thereby causing undue reputational harm to a respondent. Even so, he believes a Wells process would allow FP Canada enforcement staff to settle minor charges quickly and focus on prosecuting more serious cases.

“Not only does [a Wells process] benefit those innocent theoretical respondents out there who will have the opportunity to be heard before the charges are published, it benefits enforcement staff because it allows them to focus on the cases that are the most real and substantiated,” Keller says.

FP Canada does allow certificants to settle allegations of misconduct, but only at the case conference stage, which takes place after the allegations against a certificant have been published.

Lebrun-Reid stresses that the majority of complaints against FP Canada certificants don’t escalate to a hearing. She says 40%–50% of complaints may lead to an investigation, and about 20% may result in a disciplinary hearing.

A certificant may admit to misconduct during an investigation and explain the circumstances that led to the misconduct, Lebrun-Reid adds. The conduct review panel may determine that those circumstances were mitigating factors and recommend that the matter be closed with a confidential letter of guidance and advice, which would not qualify as a disciplinary ruling.

Lebrun-Reid says that over the past two years, hearing panels have “increasingly been awarding orders that involve continuing education requirements” — although those orders may still temporarily suspend a certificant’s FP Canada designation.

Clarification: An earlier version of this story may have implied that respondents in FP Canada disciplinary hearings have the burden of proving the allegations against them are untrue. In any case of misconduct, FP Canada bears the burden of proving the alleged misconduct. FP Canada undertakes a thorough investigation of complaints and seeks input and participation from respondents. Investigation outcomes are reviewed by an independent panel before allegations are published.

Presumptive bar cases

Some FP Canada enforcement cases may trigger a presumptive bar to certification, which also can lead to allegations being published.

Examples of presumptive bar cases include cases in which certificants have filed for bankruptcy, been convicted of a crime or suspended by a self-regulatory organization for more than one year.

In these cases, FP Canada’s conduct review panel may decide to allow continued certification, allow continued certification with a confidential letter of guidance and advice, or refer the matter to a hearing panel. If the matter is referred to a hearing panel, a statement of allegations will be published.