An April 9, 2009 decision of the British Columbia Securities Commission [BCSC], Golden Capital Securities Ltd., has changed the law regarding the conduct of such investigations to some extent by concluding that IIROC does not have an obligation to conduct itself reasonably in initiating or conducting an investigation of its members.

IIROC’s only obligation, according to the BCSC, is to act in good faith, not the higher standard of reasonableness. Though there is no bright line, there is a distinction between good faith and reasonableness and therefore the BCSC’s decision provides freer reign to IIROC in going about its enforcement procedures.

The basic rationale stated by the BCSC was:

It is in the public interest that IIROC be able to pursue investigations in good faith without having to consider whether every decision it makes in the course of initiating and conducting an investigation will be considered “reasonable” when viewed after the fact.

On the facts of this particular case, the BCSC seemed troubled by the notion that the member being investigated could impair the investigative process by declining to fully cooperate until the member had satisfied itself that IIROC was acting reasonably. It is ironic that, prior to this decision, IIROC did consider itself under a duty to act reasonably on the basis of previous decisions. In this particular case, an IIROC panel concluded that the investigative staff had met its duty to act reasonably. Golden Capital appealed that decision to the BCSC. Not only did the BCSC dismiss Golden Capital’s appeal, it concluded that the IIROC panel erred in proceeding on the basis that the investigation had to be conducted reasonably in the first place.

Although we do not expect IIROC’s protocol in the initiation and conduct of investigations to noticeably change as a result of this decision, it is likely that enforcement staff will be less inclined to concern themselves with whether their investigation will stand up to scrutiny under a “reasonableness” standard, (as that is no longer the standard) and may be less likely to debate or argue about whether certain elements of their requests are unreasonable than was previously the case.