The Investment Dealers Association of Canada has published annual reports for its compliance, enforcement and registration activities in 2004.

The IDA says that there were 83 early warning violations in 2004, to the end of November, down from 100 in 2003. These violations caused by 22 members, down from 24 in 2003. And, there were 14 capital deficiency violations, down from 19 last year; caused by nine members, down from 13 in 2003.

The IDA notes that the number of members entering Early Warning and experiencing a capital deficiency has decreased significantly from 2001 to 2004. It attributes this finding to improved profitability, the effect of the demutualization of the TSE and other Canadian exchanges in 2002, industry consolidation and improved compliance. As well, IDA enforcement action has helped put some of the riskier firms out of business, or under new ownership.

2004 was a tremendous year for IDA enforcement, in terms of total monetary penalties levied and disgorgements imposed against brokerage firms (almost $42 million, largely due to the mutual fund market-timing settlement with three firms).

Looking just at the penalties assessed to individuals, the IDA levied total fines, costs and disgorgements of $5.5 million, up from $3.3 million in 2003. Nineteen permanent industry bans were handed out, up from nine the previous year. And, the IDA also rendered a total of 65 decisions, up from 41 in 2003.

The IDA has also continued to lighten its backlog of active investigations and prosecutions. For the first time in the past four years, it no longer has investigations that have been open for more than two years, a significant change from 16 cases that had been dragging on in 2001. Similarly, there are no longer any two-year-old prosecutions lingering, down from 12 that had lasted that long in 2001.

On the financial compliance side, the primary reasons for the capital deficiencies in 2004 were: basic insufficient capital employed in the business; and, internal control failure to properly monitor capital usage of proprietary trading activities.

The sales compliance report notes that reviews: frequently found firms failing to maintain up-to-date policies and procedures; it found customer account documentation deficiencies; poor record keeping; and, non-compliant methods for identity verification.

The registration department focused on clearing the backlog which grew due to the implementation of the National Registration Database in 2003 and various bugs and deficiencies in the system were identified and fixed. “Registration staff put on an initial drive to eliminate the backlog, which was completed in January 2004. Since then there has been a steady level of open filings, showing the ability of the Registration Department to deal with fluctuations in activity,” it reports.