IIROC is in the process of a staged consolidation of its enforcement, procedural, examination, and approval rules. The stated objective of this project is to “consolidate and rationalize enforcement-related rules” currently contained within UMIR and its Dealer Member Rules. In addition to the consolidation exercise, IIROC has proposed amendments to several enforcement-related provisions “in order to improve IIROC’s overall regulatory policy framework”. IIROC’s ultimate intention is to have one set of rules that consolidates the Transition Rules, Dealer Member Rules, and Market Integrity Rules that currently govern the conduct of its Regulated Persons.
As part of its staged consolidation, on March 23, 2012 IIROC published for comment a number of proposed new rules relating to, among other things, enforcement investigations, the “conduct unbecoming” rule, enforcement proceedings, rules of practice and procedure, compliance, and registration. Comments were due by June 21, 2012.
Some of the salient proposed rule changes are as follows:
Enforcement Investigations (Proposed Consolidated Rule 8100)
- Notification: IIROC staff will not be required to notify a person who is the subject of an investigation that an investigation has been initiated. Notification and the timing of notification will be left to the discretion of IIROC enforcement staff
- Jurisdiction: IIROC will be able to require cooperation not only from Regulated Persons, but also their employees and other people who are not subject to IIROC’s general or disciplinary jurisdiction.
- Confidentiality: Regulated Persons will be prohibited from disclosing to anyone other than counsel (or other person required by law) any information relating to an IIROC investigation without the consent of IIROC enforcement staff.
- Limitation Period: IIROC will have six years to investigate Dealer Members, Former Dealer Members, Approved Persons and Former Approved Persons from the date they ceased the activity in question.
Disciplinary Hearings (Proposed Consolidated Rule 1400)
- Conduct Unbecoming: “Conduct unbecoming” will be defined as including (i) negligent conduct (which is a significant break from current case law, which requires gross negligence or wilful conduct under Dealer Member Rule 29.1), (2) “conduct resulting from a failure to apply due diligence to comply or ensure compliance with IIROC requirement or a legal, regulatory, contractual or other obligation of a Regulated Person, including a firm’s internal rules and policies”, (3) conduct that displays an unreasonable departure from standards expected to be observed by a Regulated Person, and (4) conduct that is likely to diminish investor confidence in the integrity of the securities market.
Enforcement Proceedings (Proposed Consolidated Rule 8200)
- Limitation Period: IIROC will have six years to initiate enforcement proceedings against Dealer Members, Former Dealer Members, Approved Persons and Former Approved Persons from the date they ceased the activity in question.
- Sanctions: In addition to the sanctions currently available, a hearing panel will be able to: order disgorgement of amounts obtained as a result of a rule contravention; appoint a monitor over the business and affairs of a Dealer Member; prohibit an individual from being emplo yed by a Regulated Person in an y capacity, whether or not the position requires approval.
- Enforcement Staff: “enforcement staff” will now be specifically referenced as being a party to a proceeding in order to clarify the separate and distinct roles of enforcement staff and the hearing panel, reaffirm the independence of the hearing panel, and reaffirm that enforcement staff has status to appeal a decision of the hearing panel.
Rules of Practice and Procedure (Proposed Consolidated Rule 8400)
- Prehearing Conference: an initial prehearing conference will be required immediately following the conclusion of an initial appearance in a disciplinary proceeding.
- Prehearing Motions: a motion may be brought, with leave of a hearing panel, prior to the commencement of a proceeding in order to resolve issues that may expedite or resolve the proceeding.
Compliance (Proposed Consolidated Rule 9100)
- Compliance Examinations: a free standing rule aimed at regulatory compliance rather than disciplinary matters, which authorizes IIROC staff to conduct compliance examinations as well as trade review and analysis work, and request information necessary to conduct the examinations/work. This will distinguish between enforcement investigations and compliance examinations, which are currently addressed in a single rule.
Registration (Proposed Consolidated Rule 9200)
- Approvals Rule: contains the provisions of the current Dealer Member Rules authorizing the imposition of terms and conditions on an Approved Person’s continued approval, and suspension or revocation of an approval. Under this rule, IIROC can impose terms and conditions on a Dealer Member’s membership, but not suspend or revoke membership. IIROC will have to commence a disciplinary proceeding subject to IIROC’s enforcement rules in order to seek suspension or revocation of membership.
- Opportunity to be Heard: an Approved Person or Dealer Member who may be adversely affected by a registration decision has an opportunity to be heard before the decision is made. These hearings will be heard by a senior IIROC office rather than the District Council.