The Investment Industry Regulatory Organization of Canada’s enforcement department is on a record pace, having meted out more discipline so far this year than it does in most full years.
According to IIROC’s enforcement statistics, the regulator has been much busier than usual through the first seven months of this calendar year, particularly when it comes to disciplining individuals. Through the end of July, IIROC has levied almost $5.2 million in fines against individual defendants — which is just about the same total in fines IIROC handed down in 2008, 2009 and 2010 combined.
Factor in another $1.1 million in costs and disgorgement penalties ordered so far this year, and the monetary penalty total is up to more than $6.3 million — also roughly equivalent to the past three years combined.
Both the number of decisions and the average size of the fines being assessed are also up compared with previous years. Through the first seven months of 2011, IIROC has concluded 37 hearings against individuals, compared with 48 for all of last year, 31 for 2009 and just 22 in 2008. In addition, the average fine so far this year works out to almost $140,000, more than double the average fine handed down in 2010, almost triple 2009’s average, and almost five times the average in 2008.
The numbers are not quite as impressive, however, in terms of the decisions rendered in cases involving firms. Through July, the total size of fines assessed against firms is less than $1.1 million, vs $1.3 million for the full year 2010. In terms of the volume of cases brought, on the other hand, 2011 has been a busy one. So far this year, there have been 12 disciplinary decisions against firms, compared with seven for all of 2010.
Of course, the size of the monetary penalties slapped on firms can fluctuate wildly from year to year, particularly when a significant scandal emerges. For example, 2009 was a big year for discipline against firms, when IIROC levied a whopping $32.5 million in fines while completing 15 cases; however, the vast majority of the penalties imposed that year were due to settlements with firms over inappropriate sales of asset-backed commercial paper to retail investors.
On balance, though, it’s clear that IIROC enforcement has been racking up some impressive prosecution stats so far this year. “Overall, we are pleased by the volume of disciplinary cases completed by the IIROC hearing panels,” says Paul Riccardi, IIROC’s senior vice president, enforcement, policy and registration.
Riccardi suggests that one reason for the evident increase in enforcement activity “is the sharp rise in cases relating to marketplace prosecutions” — which, he notes, have increased to 15 cases in the first seven months of this year from four cases in the same period in 2010.@page_break@“Over the past year,” Riccardi adds, “we have made a strategic decision to focus more of our enforcement resources on this rapidly evolving segment. And we are starting to see results.”
In addition, Riccardi points to a decision IIROC made in 2010 to create a dedicated market team within its enforcement department, which, he says, “has enhanced our ability to bring forward robust market investigations and disciplinary prosecutions.”
Another factor, Riccardi suggests, is that the regulator has made operational improvements in a bid to enhance the effectiveness of its disciplinary and enforcement efforts. Specifically, IIROC has more closely integrated its investigative and prosecutorial teams to ensure a more seamless transition of cases from one stage of the enforcement process to the next. These changes are “also having a positive impact” on its prosecution rates, he notes.
But while IIROC may have boosted its prosecution rates this year by intensifying its focus on market-related transgressions, that doesn’t mean the dealer side can breathe a sigh of relief. Some of the most common complaints against dealers are likely going to feature prominently on IIROC’s radar in the coming year.
“Moving forward,” notes Riccardi, “we will continue to look for opportunities to improve the effectiveness of our enforcement efforts, with a renewed focus on suitability, including issues relating to seniors.”
Collecting on the hefty fines the regulator has handed down so far this year will likely be IIROC’s next challenge. According to its annual report for the fiscal year ended March 31, although IIROC collected almost 99% of the fines it levied against firms last year, it managed to collect on only 14.6% of the total assessed against individuals.
This has long been a problem for regulators in Canada. For the most part, they have very little recourse for collecting fines against a person if he or she simply decides to leave the industry. Susan Wolburgh Jenah, president and CEO of IIROC, says that the regulator is continuing to look for new ways to collect fines and cost awards more effectively, and that it’s also seeking additional powers to enforce orders and collect fines.
Still, difficulty in collecting these penalties remains an eternal source of frustration for investor advocates, who point out that the deterrent effect of enforcement is substantially weakened when violators can escape penalties so easily.
Nevertheless, losing the right to work in the industry is no small sanction in itself. IE
IIROC enforcement on the rise
The SRO has been much busier than usual through the first seven months of 2011, particularly when it comes to disciplining individuals
- By: James Langton
- August 29, 2011 October 30, 2019
- 10:35