The Investment Industry Regulatory Organization of Canada (IIROC) released its annual Enforcement Report (Report) for the fiscal year 2022 (April 1, 2021 to March 31, 2022). The report highlighted IIROC’s commitment to protect clients, namely senior and vulnerable clients, its achievements in strengthening its legal authority across Canada, and the results of the inaugural use of Early Resolution Offers to speed up enforcement matters.

The Report references the main benefits of introducing Early Resolution Offers as 1) speeding up the enforcement and remediation process most notably the cooperation from member firms and 2) freeing up resources both at IIROC and at member firms as a result of speedier resolutions. It noted that firms are further incentivized to participate in the process by the 30% reduction in sanctions imposed. During the inaugural year of the program, IIROC entered into four offers with member firms. The main themes of these enforcement matters related to strengthening market integrity and improving industry standards.

For one member firm, its failure to comply with trading supervision obligations to detect and prevent a client interfering with fair market operations lead it to accept an Early Resolution Offer option. The matter was discovered by the IIROC enforcement team. Once brought to the firm’s attention, it cooperated fully with the investigation and remediation efforts, resulting in a reduced fine of $150,000, which was resolved in weeks instead of months.

The other matters resolved involved lapses in industry standards. The member firms involved were cited for failing to establish and maintain a system to supervise the activities of their employees, or the failure to establish internal controls and supervision that would reasonably allow for compliance with IIROC by-laws and requirements and failure to implement adequate supervisory controls when onboarding accounts of clients trading in crypto currencies and other assets.

In one case, the firm discovered the issue and notified IIROC. The issues involved an inconsistency in the fees charged to clients in fee-based accounts which differed from what was documented in the clients’ fee agreements. The firm’s cooperation with IIROC assisted in the reduction of the fine imposed.

In total IIROC reported an increase in fines, disgorgement and costs imposed by hearing panels on IIROC-regulated persons (individuals and firms) during fiscal 2022. Over $4 million in fines were imposed industry wide, with individuals ordered to disgorge $211,736.87 of ill-gotten gains, an increase from prior years.

IIROC’s right to impose and collect fines from coast to coast has been confirmed with Newfoundland and Labrador becoming the final jurisdiction to allow IIROC the authority to collect fines through the courts. The report highlights IIROC’s efforts to strengthen the effectiveness of its enforcement authority and its efforts to request that provinces grant the ability to collect evidence during investigations and provide IIROC protection against malicious lawsuits when acting in accordance with its mandate.

Finally, the report notes that even as the announced merger of IIROC and the MFDA comes closer into being, enforcement efforts under the new SRO will continue to strengthen regulatory efforts to protect the Canadian markets. It will be interesting to keep a close eye on the new SRO’s enforcement powers and actions moving forward.

August 17, 2022