IIROC gets tough on enforcement

In monetary terms, the penalties that reps received continued to rise last year. IIROC levied almost $10 million in fines against individuals during 2012, up from $6.4 million in the previous year. And, factoring in other sorts of monetary sanctions (costs and disgorgement orders), the monetary penalty total reached $10.5 million in 2012, up from $7.9 million in 2011.

IIROC achieved this 33% year-over-year jump in total monetary penalties despite the fact that there were two fewer decisions handed down by IIROC hearing panels against individuals last year. (The number of decisions dipped to 56 in 2012 from 58 in 2011.) As a result, the average total penalty jumped to $187,500 in 2012 from $136,206 in 2011, which was already a big step up from the previous few years, for which the average penalty hovered at around $70,000.

The overall increase in penalties partly reflects the timing of prosecution proceedings, says Jeff Kehoe, IIROC’s vice president of enforcement: “For example, we have had more decisions rendered over the past two years in comparison to previous years, which will impact the total fines levied for those years.”

Indeed, the 114 decisions that have been rendered in cases against individuals in the past two years combined represents a notable jump from the 73 decisions that were reached in the two-year period before that (2009-10). However, the big jump in average penalties also indicates that the increase in monetary sanctions isn’t just the result of more cases being concluded; the penalties are also getting more severe.

Kehoe suggests that this reflects IIROC’s determination to pursue cases that involve more serious wrongdoing. “As we focus more of our enforcement efforts on cases in which there is greater harm,” he says, “the fines we are recommending will be more significant.”

And, ultimately, IIROC hopes that this increased enforcement activity pays off by preventing harm to investors. Adds Kehoe: “We will continue to pursue those firms and individuals engaged in wrongdoing proactively. And levying fines that reflect the seriousness of the offence will send a strong deterrent message.”

However, fines aren’t the only form of correction that IIROC administers. Given the inability, in general, of regulators to collect the monetary penalties they hand out, the size of monetary penalties can be a misleading indicator of enforcement intensity.

The other major sanction that regulators have at their disposal is the ability to kick offenders out of business entirely or, at least, to the sidelines temporarily. And, on that count, IIROC statistics show that the use of this sort of penalty rose last year, too.

@page_break@ Although the number of permanent bans IIROC handed out during the year declined (to nine in 2012 from 11 in 2011), the use of suspensions jumped notably year-over-year. IIROC gave out 34 suspensions last year, up from 19 in the previous year and 17 in the year before that. (In 2009, suspensions were given in just eight cases.) Thus, the apparent increase in enforcement isn’t just costing violators money; it’s costing them time, too.

However, this seemingly tougher line against individuals is not reflected in the regulator’s actions against their firms. In that respect, last year was an unremarkable one. Enforcement activity on that side of the business was little changed.

The number of decisions involving firms last year declined by two from the previous year, to 16 from 18, and the monetary sanctions assessed on firms slipped as well, totalling $1.62 million for the year, down from $1.69 million in 2011.

What does appear to be changing, however, is the type of cases IIROC is taking on. For example, IIROC opened just 87 case-assessment files involving complaints about unauthorized and discretionary trading in 2012, down from 153 in 2011 and 369 in 2009. At the same time, the number of files opened to consider suitability complaints jumped last year to 224, up from 154 in 2011 and 117 in 2010.

However, there are a couple of caveats to these numbers. In mid-2011, IIROC changed the way it handles public complaints. Up to that point, the enforcement department dealt with all those complaints directly. Since then, IIROC’s new complaints and inquiries team has filtered those incoming gripes, so enforcement sees only those cases involving genuine regulatory issues. As a result, it’s impossible to compare 2012 data with those of previous years.

IIROC receives approximately 1,400 calls from the public each year, but only a portion of those calls relate to regulatory matters. So, the apparent decline in public complaints for 2011 and 2012 is actually just the result of IIROC’s new procedure for handling those incoming calls and limiting the referrals sent through to enforcement.

Also, as IIROC steps up its attention to suitability issues, it may be that cases previously identified as unauthorized trading complaints now are being considered suitability issues.

Nevertheless, regardless of what IIROC calls the underlying issue, it seems clear that enforcement has ramped up in the past couple of years. And that doesn’t look likely to ease anytime soon.

“As part of our strategic plan, we continue to focus on issues relating to seniors and, particularly, suitability,” notes Kehoe. “Combined with our new case-selection criteria, we are seeing an increase in suitability-complaints cases.”

For 2012, IIROC also reports that total ComSet events – which includes client complaints, civil claims, criminal charges and disciplinary actions – rose to slightly less than 2,000, up from slightly more than 1,700 in 2011.

The enforcement well appears to be far from dry.

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