Immediately after the Investment Industry Regulatory Organization of Canada (IIROC) launched a consultation on possible new regulatory enforcement options, an investor advocate is urging the body to provide clearer evidence to support its proposals.
“[W]e are unable to provide support because of the lack of specificity and core data in the consultation,” said Ken Kivenko, president of Kenmar Associates.
In a draft response letter provided to Wealth Professional, Kivenko questioned the national survey that IIROC presented to support its proposals. Aside from suggesting that many participants likely didn’t understand the poll, he noted a previous submission urgent IIROC not to use online surveys for policy setting.
“Online surveys are not appropriate where deep knowledge and understanding of the issue(s) are required,” he said. “There's probably a question as to how well vulnerable investors are represented when the polling is conducted on the web.”
IIROC’s findings also did not align with those of established investor advocates, Kivenko added. Submissions from such entities found clearly that fines were too low, and that anonymity in cases of wrongdoing — which is allowed under IIROC’s proposed Minor Contraventions Process (MCP) — was not good policy.
“We recommend the name of the dealer be disclosed so that reviewers can assess whether a particular dealer’s [representatives] incur an unusual number of MCP Agreements,” the letter said.
Deterrence was another key concern. Commenting on IIROC’s suggested Early Resolution Offers (EROs), it suggested that offering a potential 30% discount on fines and costs would not act as a specific or general deterrent for wrongdoing, but rather have the opposite effect. It also argued that the MCP proposals appear to be “more about fairness towards the dealer and registered representative as opposed to … eliminating root causes of wrongdoing.
“We are glad to see that the fine for Reps has been doubled to $5000 from the prior proposals,” the letter noted. “Dealers will not participate in the program which is also a positive improvement.”
It also argued that while the proposal sets out specific criteria and additional factors in considering an MCP notice to resolve a contravention, the terms used such as “technical”,” isolated incident “, “unintentional”, and “limited client harm” are still open to interpretation. In the case of seniors, it said, clients should be notified of investor harm. It added that any case to be considered eligible for the MCP should either result in no harm or loss or, in cases of modest harm or loss, clients should have been fully compensated for including interest and fees.
Kivenko also said the consultation falls short on evidence because it doesn’t include an estimate of the average number of past cases that would have fallen under the proposed MCP Notice Regime. “[T]he proposal will shield these cases from the NRD and other public disclosure,” he said. “The greater the number, the more concerned we would be re investor protection.”
As for EROs, the letter voiced concerns that opaque discussions between IIROC and its members may result in fewer precedents that investors and regulated properties can look back on to protect themselves, and certain types of misconduct may never come to light. A simpler solution to reduce cycle times and workloads, the letter suggested, could be an increase in fines (which would act as a deterrent and reduce the number of cases) or in IIROC’s budget (which could enhance its ability to act on its mandate).
“We do not feel a convincing case has been made for adoption of either of the two proposals,” Kivenko said.
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