IIROC’s 2016 enforcement report: Increased activity against individuals

The Investment Industry Regulatory Organization of Canada (“IIROC”) recently published its 2016 Enforcement Report (the “Report”). Like the 2016 enforcement report of the Canadian Securities Regulator, published earlier this year, the IIROC Report reflects that securities regulators seek an ever-more active position in the Canadian regulatory environment. The Report notes that 2016 was a year of increased enforcement activity – both in terms of pure numbers and in terms of the breadth of enforcement. The Report shows the following activity for 2016:

• Received 1,459 total complaints, an increase from 1,341 in 2015.
• Completed 138 investigations, a 10 per cent increase from 2015.
• Commenced 55 proceedings, a 25 per cent increase from 2015.
• Conducted 21 contested hearings, an increase from 13 in 2015.

While 2016 was an active year in most respects, it was a year of decreased activity as against firms, with:

• 50% fewer prosecutions in 2016; and
• A decrease in fines levied, from $1,500,000 in 2015 to $425,000 in 2016 (including fines, costs and disgorgement).

IIROC has also made significant strides in its ability to collect on fines. Fine collection from individuals has been a longstanding issue for IIROC, but notably, the same problem has not plagued collection from firms. For example, in 2016 IIROC collected 100% of firm fines, but a mere 8.3% of individual fines. This is not surprising given the fact that individuals tend to withdraw from IIROC after getting into trouble, whereas firm members need to “play nice” with their regulator as a matter of business.

With collection from individuals at issue, IIROC has made the following progress:

• In January 2017, the Prince Edward Island Office of the Superintendent of Securities granted IIROC the authority to directly register its disciplinary decisions with the Supreme Court of PEI; and
• In March 2017, the Ontario government announced its intention to strengthen investor protection in Ontario by introducing legislative amendments to allow IIROC to pursue the collection of disciplinary fines directly through the courts. This provision was also referred to in the budget.

The Report notes that IIROC is now willing to take on more difficult and contentious cases in order to promote a strong regulatory message.

As previously noted, large fines imposed do not necessarily reflect robust enforcement. Instead, one needs to look closer at the impact IIROC is having on its member firms, in encouraging them and their personnel to develop, maintain and enhance a culture of compliance. Understanding IIROC’s concerns and priorities is part of that effort and is a significant component in managing risks and opportunities by regulated firms.