Several financial services firms have agreed to pay $138.8 million in penalties and costs in connection with the investigations into the Canadian asset-backed commercial paper (ABCP) market, securities regulators said Monday.
Settlements were reached between the Autorité des marchés financiers (AMF), the Ontario Securities Commission (OSC) and the Investment Industry Regulatory Organization of Canada (IIROC) and seven institutions involved in the Canadian third party ABCP market.
The Canadian $32 billion ABCP market ground to a halt in August 2007 amid fears that the assets behind the notes included U.S. subprime mortgages and other high-risk loans.
National Bank Financial Inc. received the largest penalty. Its settlement totals $75 million, including an administrative penalty of $70 million, $4 million to fund an investor education campaign, and $1 million in investigation costs.
The OSC reached two settlements: one with CIBC and CIBC World Markets Inc. and the other with HSBC Bank Canada.
The AMF reached two settlements, one with National Bank Financial, and the other with Laurentian Bank Securities Inc.
The administrative penalties and investigation costs to be paid by the firms is as follows:
• National Bank Financial Inc. (TSX:NA), $75 million
• Scotia Capital Inc. (TSX:BNS), $29.27 million
• CIBC and CIBC World Markets Inc. (TSX:CM), $22 million
• HSBC Bank Canada, $6 million
• Laurentian Bank Securities Inc. (TSX:LB), $3.2 million
• Canaccord Financial Ltd. (TSX:CCI), $3.1 million
• Credential Securities Inc., $0.2 million
In addition, each institution agreed to have an independent compliance review or verification of its fixed income department undertaken by an outside consultant.
“With regard to financial penalties imposed, a fair and appropriate use for the sanction monies will be determined in accordance with applicable laws, court orders and in the public interest,” the regulators said in a release.
Five of the institutions — CIBC, Laurentian, HSBC, National Bank and Scotia — are alleged to have failed to adequately respond to issues in the third party ABCP market, as they continued to buy and/or sell without engaging compliance and other appropriate processes for assessing such issues. Particularly, they did not disclose to all their mainly institutional clients the July 24 email from Coventree Inc. providing the subprime exposure of each Coventree ABCP conduit.
Credential and Canaccord are alleged to have failed to take adequate steps to ensure that its “approved persons” understood the complexities of the third party ABCP and, in not taking these adequate steps, did not ensure that the purchase of third party ABCP was appropriately understood by their retail clients.
The OSC and IIROC have begun disciplinary hearings against Coventree and Deutsche Bank Securities Ltd. in this matter.
Alfred Apps, an insolvency lawyer with Fasken Martineau DuMoulin, said the settlements Monday represent a successful conclusion for all parties involved and will be beneficial for consumers and for the markets.
“It’s a good day for financial regulation in Canada,” he said. “This is not a nominal amount and as a consequence of that, the industry is going to be changing its diligence and compliance practices to respond to what is happening in this case.”
with files from the Canadian Press
IE
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