The Investment Industry Regulatory Organization of Canada (IIROC) recently released its Annual Enforcement Report (Report), which highlights IIROC’s efforts to increase its rate of collection on monetary fines, including through increased legal authority to collect unpaid fines through the provincial court systems.
INCREASED LEGAL AUTHORITY
As detailed in the Report, since January 2017, IIROC has been granted enhanced enforcement capabilities in five provinces (British Columbia, Manitoba, Alberta, Ontario and PEI) through various amendments to the provincial securities acts. Increasing enforcement capabilities has been a key priority for IIROC, as discussed in our June 2017 Blakes Bulletin: Investment Industry Regulatory Organization of Canada Sets Priorities for 2018. While the precise enhancements differ amongst the provinces, the enhancements generally grant IIROC the power to collect disciplinary fines through the courts.
The expansion in IIROC’s powers has been undertaken as part of an ongoing three-year strategic plan (released May 26, 2016) focused on improving IIROC’s collection of fines. The Report indicates that IIROC is engaged in discussions with other provincial and territorial governments to obtain similar enforcement tools.
INCREASED MONETARY COLLECTION
The Report states that in 2017, the overall number of IIROC investigations decreased, but the total amount of monetary collection increased.
In 2017, IIROC collected 16.2 per cent of sanctions imposed against individuals and 91.2 per cent of fines imposed against firms (lower than the 100 per cent collection rate in 2016, due to a permanent suspension of a firm in 2017).
While IIROC’s rate of collection continues to be far lower in regard to individuals than in regard to firms, the Report highlights IIROC’s increased legal authority to collect fines as leading it to nearly double its rate of collection of sanctions imposed against individuals from 2016 (the 2016 collections rate was 8.3 per cent).
IIROC anticipates that the legislative changes will continue to enhance its ability to collect fines. The Report points to Alberta and Quebec as illustrative. Prior to 2017, Alberta and Quebec were the only provinces in which IIROC had legal authority to enforce fines through provincial courts. In both provinces, IIROC realized collection rates that were significantly higher than the national average. Additionally, as over half of IIROC’s disciplinary cases generally originate in Ontario, the Report cites the recent legislative amendments in the province as having a significant effect on the increased total monetary collection in 2017.
Other highlights include:
- Overall number of complaints decreased by 20 per cent, due largely to the decrease in complaints originating from the Complaints and Settlement Reporting System
- Decrease in the number of completed investigations (127 down from 138)
- Decrease in the number of prosecutions commenced
- Suitability remained the top priority for enforcement (45 per cent of all prosecutions)
- In an effort to protect seniors and vulnerable investors, seniors represented 40 per cent of all cases reviewed and 30 per cent of all prosecutions
- The number of prosecutions involving firm supervisory failings increased 25 per cent (six up from four)
- Fewer permanent bans and suspensions of individuals from the year prior (five and 16 down from six and 20, respectively)
The manner in which IIROC utilizes its expanded enforcement powers in the coming year will be of interest to industry participants. IIROC will continue to pursue similar authority in those jurisdictions where it does not yet have such powers. This is especially so, since IIROC has stated there has been “an overall change in behaviour with sanctioned advisors taking their responsibilities to IIROC more seriously” in those jurisdictions where it has obtained expanded enforcement powers.
Other major parts of the strategic plan will also continue to be implemented by IIROC, through: pursuing alternative forms of disciplinary action; reviewing its compliance referral process; seeking statutory immunity for good faith performance of its regulatory functions; aiming to strengthen its evidence collection powers; and adding more information sharing agreements with other regulatory agencies.
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