The Investment Industry Regulatory Organization of Canada (IIROC) has released its 2021-2022 Enforcement Report. The Report highlights IIROC's enforcement activities in the past year and provides insight into IIROC's enforcement priorities. Below are our top takeaways.
Reduced number of investigations and enforcement proceedings
In fiscal year 2022, IIROC completed 76 investigations, commenced 25 enforcement proceedings, and concluded 31 proceedings. Each of these statistics are well below IIROC's historic activity levels. For example, in the 2018 fiscal year, IIROC completed 123 investigations, commenced 35 enforcement proceedings, and concluded 42 enforcement proceedings. While the number of complaints also fell during this period (1,153 in FY18 versus 1,053 in FY22) this does not fully explain the drop in the number of investigations and proceedings commenced by IIROC. The trend of reduced complaint volumes, investigations, and proceedings likely has to do with sustained bull markets over the past several years. However, given the markets' recent volatility and stormy economic outlook, registrants can expect increased complaints to IIROC and resulting investigatory activity.
Increased penalties for misconduct
Despite a year of reduced enforcement activities, the amount of sanctions imposed on registrants was up significantly, particularly for individual registrants (as distinct from dealer member firms). In FY22, IIROC imposed a total of approximately $2.1 million in fines against individuals, close to three times the amount in FY21. While this may have been due in part to one very large fine ($950,000) imposed on an advisor found to have misappropriated client funds, with these increased penalties IIROC may also be demonstrating a focus on deterring individual registrants from misconduct with a view to enhancing the standard of advisor conduct.
Focus on Early Resolution Offers and mediation
The Report emphasizes IIROC's April 2021 introduction of Early Resolution Offers (EROs) to promote the efficient resolution of enforcement proceedings and save regulatory resources. It also notes that IIROC's mediation program has proved to be an effective tool in reaching timely and cost-effective settlements. Four enforcement matters were resolved through EROs since the program's introduction. As EROs become more common the benefits to Registrants of accepting these offers will likely become clearer. However, it is worth noting that each of the cases that were resolved through the use of an ERO still carried significant penalties and costs payments for the registrants.
Priority on protecting seniors and vulnerable clients
The protection of seniors and vulnerable clients has been a key priority for IIROC's enforcement branch for several years now, and this year is no different. IIROC highlights two cases where the clients had significant capacity issues and the registrants failed to know their client or acted in a manner which departed from the standards of conduct. Given the growing number of seniors in Canada, there is no reason to suspect that IIROC's focus in this regard will abate. Registrants should ensure that they are appropriately monitoring aging clients and their account objectives, particularly in situations where there may be capacity issues. IIROC's recent amendments to Rule 3202 that require dealers to take reasonable steps to obtain contact information for a trusted contact person should assist in this regard.
Enforcement of Client Focused Reforms looms
While not expressly mentioned in the Report, given that the last of the Client Focused Reforms (CFRs) came into effect on December 31, 2021, we expect these new rules to be an area of focus for IIROC enforcement in the coming quarters. Registrants would be well-advised to ensure that they are knowledgeable about and taking steps to comply with the applicable CFRs guidance, as these issues are sure to be assessed by IIROC Staff in forthcoming audits and investigations.
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