The Investment Industry Regulatory Organization of Canada (IIROC) is engaged in a three-year strategic plan to expand its portfolio of enforcement options. As part of this initiative, IIROC has proposed two potential new enforcement options and has invited industry input.
The proposal is to introduce a Minor Contravention Program (MCP) and Early Resolution Offers (ERO) into the IIROC enforcement portfolio. IIROC’s stated goal is that these options will permit more tailored enforcement responses that are fair and proportionate to the particular circumstances of cases under investigation.
Currently, after an IIROC investigation is completed, there are three possible next steps: close the matter with no action, issue a cautionary letter, or initiate formal disciplinary proceedings.
A cautionary letter represents an opinion that an IIROC requirement may have been contravened and outlines concerns about the conduct. Cautionary letters have no legal effect and do not constitute a finding that an IIROC requirement has been contravened.
Where there is convincing evidence supporting an allegation of a contravention of IIROC requirements, formal disciplinary proceedings are generally commenced. These must be resolved through either a settlement agreement or a full disciplinary hearing before an IIROC hearing panel.
MINOR CONTRAVENTION PROGRAM
The MCP is intended to provide a meaningful sanction for minor contraventions of IIROC requirements that cannot be adequately addressed by way of a cautionary letter, but do not warrant formal disciplinary action. The MCP will focus on isolated incidents that result in limited or no harm to the public or capital markets.
Under the proposed IIROC framework, for a complaint falling within the MCP criteria, to receive an MCP notice the affected Approved Person or Dealer Member would be required to agree to the imposition of a sanction fixed at C$2,500 per contravention for an Approved Person and C$5,000 for a Dealer Member. IIROC’s proposal contemplates that MCP notices will not form a part of any formal disciplinary record. As such, offenders who make admissions pursuant to the MCP would not be required to disclose the MCP notice as a part of their disciplinary history.
Individuals with prior disciplinary records will likely not qualify for the MCP, nor will an individual be able to take advantage of the MCP more than once. IIROC staff will consider specific criteria and factors in determining whether to offer an MCP notice, including:
- The type of contravention
- Prior history
- Any proactive steps relating to self-reporting and internal discipline
For example, if the following factors are present, access to the MCP is likely not available:
- Deliberate conduct
- Prior disciplinary history
- Significant harm to investors or the reputation of the capital markets
- Conduct involving serious and complex issues
- Conduct relating to whether a firm fully and properly supervised securities-related activity
EARLY RESOLUTION OFFERS
Currently, enforcement cases may be resolved by entering into a settlement agreement that is subject to approval by an IIROC panel. However, despite staff encouraging the early settlement of cases and the adoption of measures to facilitate timely resolution, the settlement process remains time-intensive and costly. EROs are intended to address this issue by promoting the efficient and early resolution of cases, increasing the practice of “credit for cooperation” and encouraging firms to take remedial measures and address harm in a timely manner.
Under the proposed program, in exchange for agreeing to an ERO, substantial credit in the determination of the fine and costs sought will be granted to the registrant. EROs will be made early in the enforcement process and the time for accepting them will be strictly limited. Among others, the following factors will be considered in determining whether to make an ERO:
- Whether the respondent has compensated or agrees to compensate any client(s)
- In the case of individuals, whether they have been internally disciplined
- Whether the respondent, through counsel, an agent or otherwise, has expressed a willingness to resolve the matter in a timely matter
IIROC’s stated intent in regard to its proposal is to broaden its enforcement portfolio, with a view to better tailor their enforcement to permit flexible and proportionate sanctions. Stakeholders have been given until May 23, 2018 to review and comment on the proposal.