A recent settlement between an Alberta-based registrant and the Investment Industry Regulatory Organization of Canada (IIROC) presents a sharp reminder to all registrants about the importance of keeping their OBAs up to date.
In a June 4, 2021 settlement with IIROC, the registrant agreed to a $75,000 fine, a six-month suspension and an order to pay $5,000 in costs, in connection with a failure to disclose an OBA to his firm, which ultimately resulted in a conflict of interest arising between the registrant and several clients. According to the settlement, the registrant failed to notify his firm of his involvement in a property development business, in which a number of his clients also had a financial interest. Evidently, the business failed, and two of the registrant’s clients lost all, or a significant portion, of their investments. IIROC found that the registrant did not inform his firm of the OBA by downplaying his involvement, and that he failed to report, and address, a material conflict of interest with his clients.
As a refresher, as described in detail in Companion Policy 31-103 CP, registrants must disclose all outside business activities in Form 33-109F4 (or Form 33-109F5 for changes in outside business activities after registration). OBAs currently include any employment and business activities outside the registrant’s firm, all officer or director positions, and any other similar position, including positions of influence. Individual registrants under Ontario securities law are required to file OBA disclosure within 10 days of a new OBA or a change to an existing OBA.
On February 4, 2021, the Canadian Securities Administrators (CSA) released a number of proposed changes to certain initial and ongoing regulatory reporting requirements for registrants, including relating to the OBAs. The proposed changes seek to:
- Change this term from “Outside Business Activities” to “Outside Activities”, to indicate that reportable activities include more than just a compensated position.
- Provide a fairly comprehensive set of evaluation criteria to help registrants determine what is reportable to regulators and what is not.
- Extend the reporting deadlines from 10 to 30 days.
For more details regarding these changes please see Outside Activities 2.0: Potential Burden Reduction Comes to Reporting of Registrant Information.
While the Ontario Securities Commission (OSC) has announced a moratorium on late fees for failing to disclose OBAs, starting retroactively on January 1, 2019 and ending on December 31, 2021, at the latest, the recent IIROC settlement brings into focus why registrants should continue to report all their OBAs in a timely and fulsome manner.
June 30, 2021