KYCs can’t be used as a shield, rules IIROC

Halifax advisor found liable for unsuitable recommendations and unapproved trades in clients’ accounts

KYCs can’t be used as a shield, rules IIROC

The Investment Industry Regulatory Organization of Canada (IIROC) has scheduled a penalty hearing for a Halifax advisor it ruled liable for failing to use due diligence to ensure she made suitable recommendations to clients, and conducting unauthorized trades in their accounts.

In a liability decision document dated May 28, 2020, IIROC detailed how Shirley Locke recommended and purchased unsuitably high-risk securities in the accounts of several clients. The alleged infractions occurred while she was a registered representative at three different IIROC-regulated firms.

In the case of one individual who was 103 years old at the time of the hearing, Locke had prepared a KYC form in 2009 indicating that the assets in her account be placed in a growth portfolio of 50% medium-risk and 50% high-risk securities. The woman said Locke never discussed issues of risk nor the nature of a growth portfolio with her, but Locke argued in written submissions that the account documentation should take priority over live oral testimony delivered at least 10 years after the relevant events occurred.

“Ms. Locke’s position is to, in effect, use the KYCs as a shield against an objective analysis of the securities held in [the client’s] account,” IIROC said in its decision. “The Panel does not accept that proposition.”

Several other clients gave similar testimony, describing how they didn’t know their accounts held high-risk or speculative securities, or just how high-risk those securities were. One said he’d made it clear through their discussions his only investment goal was retirement, but new client account forms from 2009 and 2012 that bore his signature indicated a growth portfolio with 50% medium-risk and 50% high-risk securities.

Another client had come to her in 2010 with $900,000, specifying that $500,000 be placed in safe securities for retirement income and the rest used to explore opportunities in high-risk securities. However, the NCAF he signed described his investment objective as aggressive growth, and indicated high risk tolerance. At one point when faced with a sudden tax liability, he was contemplating borrowing funds from a bank, but was persuaded to set up a margin account instead.

“[The client] in his testimony demonstrated that he did not have a full appreciation as to how the margin account would operate,” IIROC said.

Locke claimed that in these and other cases, she had conversations to discuss issues of risk with her clients, providing handwritten notes of the meetings that proved illegible. She submitted typewritten versions, but IIROC said these were unreliable as they could have been crafted in reaction to the complaints.

The penalty hearing will be held via videoconference on July 20 at 10 AM Atlantic Standard Time.


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