What powers do national financial services authorities have to examine and investigate compliance? What enforcement powers do they have for compliance breaches? How is compliance examined and enforced in practice?
OSFI conducts regular reviews of FRFIs and issues review letters that may require or recommend they implement certain improvements and OSFI will risk rate each FRFI (on a scale from low to high). The power to enforce for compliance breaches is discussed below (see question 10).
The securities regulators have extensive powers to conduct investigations or inquiries of registrants and unregulated persons in respect of breaches of their rules and legislation. These rights and powers include the examination of documents kept by regulated persons, the right to enter the places of business of such persons and the power to summon and compel witnesses.
The Office of the Privacy Commissioner may conduct investigations and institute administrative proceedings in which it may examine documents and compel testimony. FINTRAC has similar powers to enforce compliance with the PCMLTFA and its regulations.Disciplinary powers
What are the powers of national financial services authorities to discipline or punish infractions? Which other bodies are responsible for criminal enforcement relating to compliance violations?
Both OSFI and FCAC have the power to impose administrative monetary penalties for violations of their enabling legislation. An entity can also face penal sanctions under the relevant FI legislation; for example, under the Bank Act the fine for a contravention is up to C$5 million (C$1 million for a natural person) and imprisonment for up to five years.
In administrative proceedings, securities regulators may impose administrative monetary penalties or disgorgement orders for breaches of securities legislation. Securities regulators also have powers to bring quasi-criminal proceedings in which the court may impose jail time or orders for restitution.
In the event of non-compliance with the PCMLTFA and its regulations, FINTRAC has the power to impose administrative monetary penalties and, under proposed amendments to the regulations, will be entitled to revoke the registration of MSBs.
Privacy commissioners do not have powers to impose sanctions but can seek damages before the common law courts and have published cases of non-compliance on their websites.
Enforcement of offences under the Criminal Code falls to the provincial criminal prosecutors working with the various provincial and federal law enforcement agencies, such as provincial police forces and the Royal Canadian Mounted Police.Tribunals
What tribunals adjudicate criminal and civil financial services infractions?
The common law courts of a province or territory hear cases for criminal and penal infractions. For example, OSFI or securities regulators may institute proceedings in provincial courts against persons who violate FI legislation or the Securities Acts. Administrative tribunals and disciplinary committees adjudicate civil infractions in the case of securities registrants.Penalties
What are typical sanctions imposed against firms and individuals for violations? Are settlements common?
The sanctions will vary as a function of the severity of the infraction and the size of the FI or securities registrant. Following a well-publicised investigation, the OSC and AMF fined Canada’s biggest banks and investment dealers C$138.8 million for their role in the crash of the Canadian asset-backed commercial paper market in 2007. At the other end of the spectrum, regulators may be satisfied to apply the minimum sanction and limit the number of offences with a view to deterring certain conduct.
Settlements are common in Canada, which can be explained by several factors including the cost to defend regulatory actions, the broad powers of FI and securities regulators to obtain ex parte and freeze orders, the deference given by the courts to FI and securities regulators for their expertise and mission to protect the public and the recent use and acceptance of ‘no-contest’ settlements in certain jurisdictions. The AMF has taken the position that it will not accept ‘no-contest’ settlements.
In addition to imposing monetary sanctions, FI and securities regulators often require the FI or securities registrant to improve their internal controls and governance and have even required that directors and officers be replaced if they were involved in the wrongdoing or failed in their supervisory duties.