IDA spends it's credibility, changes its name to IIROC

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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Tue Sep 10, 2019 4:16 pm

“…putting clients at risk…” Quote from a bank branch manager to CBC news,

The investment industry’s trade and lobby group, the IIAC recently suggests that Saskatchewan financial regulations should not apply to its financial advisors, suggesting that rules and laws which apply to financial industry participants, should be not be considered for their financial industry participants. https://iiac.ca/wp-content/uploads/IIAC ... 8-2019.pdf

This is an issue of safety which causes financial harm to Saskatchewan residents who work, save and invest to retire, when industry-paid bodies are able to lobby and influence rules to better suit their members financial interests, without unbiased consideration for the public interest.

Having unlicensed, fraudulently represented, non-regulated financial professionals has been found to reduce some investors life savings by half or more, over a lifetime of investing. (Source Ontario Securities Commission Chair)

The public interest issues involved are a clear plea to the Saskatchewan government to regulate financial planners, while arguing that its own (IIAC’s) financial “advisors” should be left untouched.

As it argues this, it admits that “financial advisor” is a non-registered title, (third para, page 3) yet ignores its own fact that the largest body of financial advice givers in Canada “advisors”, (2nd para, page 1) are using this non-registered title, while concealing from the public their true license category’s, their true job descriptions (sales), and their legal or fiduciary duties to care (or none) for the advice or the products sold to investors.

Concealing or exempting any body from license/registration requirements is to grant that body a license to do potential harm to the public, leaving Saskatchewan residents unprotected. This (registration concealment) is usually done to induce investors into a financial relationship based upon a withholding of information, which is often harmful to the investor. It is simply a “bait and switch” to earn a false trust.

CBC National News lead story of March 2017, described how over 120,000 financial “advisors”, (13,065 found in SK today, Sep 10, 2019) were found to be misrepresenting the category of their registration, and using confidence-inspiring “titles” in their place. https://www.youtube.com/watch?v=OsjD77KceIE&t=15s

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I urge the residents of Saskatchewan to resist the tendency to believe what they are told by industry paid groups. I urge Saskatchewan investors to be aware that their provincial government legislated regulator to whom this industry lobby group pleads, is also funded by the investment industry itself, and not by their own government. It is all quite strange and hidden behind layers of obfuscation, however I hope that the public will become aware, and begin to protect their life savings from industry handmaids and lobby groups.

Larry Elford
Investment Industry Analyst/Expert Witness
=========================

==========================
Below, is a pasted copy of the IIAC plea: (Select portions of this IIAC letter are underlined by Larry Elford, for greater public clarity of the issues and a few lines of a contradictory (double-speak) nature are in red font for my own ease of locating)

From: Michelle Alexander Vice President malexander@iiac.ca

To: Financial and Consumer Affairs Authority of Saskatchewan 601, 1919 Saskatchewan Drive
Regina, SK S4P 4H2
Attention: Dean Murrison, Director, Securities Division
VIA EMAIL
finplannerconsult@gov.sk.ca

August 28, 2019

Re: Consultation on the Regulation of Financial Planners and Financial Advisors

The Investment Industry Association of Canada (the "IIAC") appreciates the opportunity to provide input to the Financial and Consumer Affairs Authority (“FCAA”) of Saskatchewan regarding the regulation of financial planners in the province.

The IIAC is the national association representing the investment industry’s position on securities regulation, public policy and industry issues on behalf of our approximately 120 investment dealer member firms in the Canadian securities industry that are regulated by the Investment Industry Regulatory Organization of Canada (“IIROC”). These dealer firms are the key intermediaries in Canadian capital markets, accounting for the vast majority of financial advisory services, securities trading and underwriting in public and private markets for governments and corporations.
As outlined in previous stakeholder consultations and our submissions to the Ontario government, the IIAC supports additional clarity and standardization for the provision and supervision of financial planning in the industry. We recognize that there are many individuals who may hold themselves out as financial planners but may not have the necessary proficiency requirements and appropriate oversight.

Clarity and protection for investors, who are being served by a wide variety of people calling themselves financial planners, is welcome. It is imperative to ensure that those involved in financial planning have the necessary proficiency and meet minimum acceptable standards, thereby increasing confidence in the Canadian capital markets. This would be beneficial for all industry participants and, most importantly, for Canadian investors.

Page 2

The IIAC supports the Ontario government’s view that individuals using the title “Financial Planner” in Ontario must have the necessary training and expertise to provide financial planning services, thereby restricting the use of the title “Financial Planner” to individuals holding a recognized financial planning credential.

While the IIAC, in principle, does not object to the Ontario government passing the Financial Professionals Title Protection Act, 2019 (the “Ontario Act”), the regulations that are subsequently developed will need to be examined closely to ensure they provide the necessary clarity for the financial services industry and the investing public. For example, it will be important to ensure that the regulations articulate what activity the FCAA is intending to capture, and enough specificity regarding who exactly is a Financial Planner.

As set out in our previous submissions to the Ontario government, the IIAC recommends that the regulation of Financial Planners extend not only to those who hold themselves out and/or use the title of Financial Planner, but also to anyone who provides Comprehensive Financial Plans to clients. Such a definition would provide clarity as to who is captured and subject to regulatory oversight.

A Comprehensive Financial Plan is taken to mean a complex written plan prepared as part of an integrated financial planning processing encompassing areas such as financial management, insurance, risk management, investment planning, retirement planning, tax planning, estate planning and legal aspects. Financial advisors who are not Financial Planners also provide some planning as part of the service they offer to the public, such as investment or retirement planning services. Unlike these plans, a Comprehensive Financial Plan provided by a Financial Planner or someone who holds themselves out as a planner, is a complex plan that typically includes a deep dive into areas including tax, estate and all types of insurance. Financial planners may, in certain circumstances, and based on the client’s needs, provide modular plans that address some but not all of the areas of financial planning, but such plans will generally be prepared as part of a seven-step or integrated planning process.

We also support the Ontario government’s previously stated views that other titles may need to be addressed as individuals might attempt to use these similar titles to avoid the credential requirement, which would hamper consumer protection. However, focusing on titles alone without determining whether in fact an individual is providing activity that falls under a definition of financial planning, does not fully address the issue and ultimately would not adequately meet the objective of protecting consumers.

As IIROC-regulated firms, our members have indicated that, currently, they expect their financial planners to have acceptable financial planning credentials and the IIAC looks forward to providing additional comments on recognized credentials as the proposed framework develops through future consultations.

As the IIAC outlined in its submission to the Canadian Securities Administrators (“CSA”) on its Consultation Paper 33-404 Proposals to Enhance the Obligations of Advisers, Dealers, and Representatives Toward Their Clients, the IIAC fully supports limiting the range and number of titles currently used in the industry to the extent that this in fact enhances clarity for investors.

Page 3

However, we have expressed our concerns to the Ontario government regarding extending provisions related to financial planners to also capture financial advisors.

Our concern relates to the potential broadness of a definition of “Financial Advisor”. Previously proposed definitions by the Ontario government would theoretically cover any individual within the entire realm of the financial services industry. Therefore, such a definition would make it applicable to a wide range of financial services professionals, including registrants governed by IIROC and the MFDA.

While the title of “Financial Advisor” is not a registration category under securities legislation or an approval category under IIROC, it is an established title that is used generally in the financial services industry. Many individuals in IIROC firms use the title of financial advisor.
However, the IIAC firmly believes that individuals using this title should be professionals with the necessary proficiency and education requirements.

The provision of financial advice is highly regulated in the existing regulated channels. This has been achieved for advisors in the securities and insurance industries with the development of an extensive framework of rules and regulations by the SROs, the OSC and the Financial Services Regulatory Authority.

Developing regulations for financial advisors in Saskatchewan that may contradict directly with regulations of IIROC and other regulatory bodies, including legislation of securities regulators, would be duplicative and inefficient. Furthermore, it would lead to confusion with potentially alternative standards in Saskatchewan (and Ontario) as compared to the rest of Canada, and lead to questions relating to the jurisdiction of various regulatory organizations. It is strongly recommended that the FCAA not impose differing or duplicative obligations on professionals who are already subject to extensive and exhaustive regulatory oversight. To that end, we recommend that FCAA focus any proposed requirements on only those individuals providing comprehensive financial plans to clients and/or use the title of Financial Planner.

As the IIAC has previously stated, we support the use of the title “Financial Planner” for individuals holding a recognized financial planning credential. However, it is important to work with all regulators across Canada to develop a list of approved titles for not only financial planners but for all those engaged in the financial services industry, which will promote greater transparency for potential and existing clients, particularly more vulnerable and less sophisticated investors.

The IIAC would also like to stress the need for a harmonized and national approach to any regulatory framework developed for financial planners. This is the only way that consumers can expect to receive uniform standards of service when they engage a financial planner, regardless of whether the planner offers its services through an IIROC-registered dealer, through another regulated channel or in another province.
Developing regulation solely in the province of Ontario or Saskatchewan fails to address the national scope of many of our members and the need to harmonize regulation of financial planning across all Canadian jurisdictions to avoid fragmentation, client confusion and inefficiencies in the system. A patchwork approach to regulation where different requirements exist in different jurisdictions fails to provide the necessary level of protection that all Canadian consumers deserve.

Thank you for considering our submission. We would be more than pleased to meet with the FCAA to respond to any questions that you may have.

Yours sincerely,

Michelle Alexander
Vice President
malexander@iiac.ca

==========
end
==========
(Select portions of the above IIAC letter are underlined by Larry Elford, for greater public clarity of the issues and a few lines of a contradictory (double-speak) nature are in red font for my own ease of locating)

IIAC seems to be trying to sell the theory that:

1. While the title of “Financial Advisor” is not a registration category under securities legislation or an approval category under IIROC

2. The provision of financial advice is highly regulated in the existing regulated channels.

3. It is strongly recommended that the FCAA not impose differing or duplicative obligations on professionals [u][color=#FF0000]who are already subject to extensive and exhaustive regulatory oversight.

(It seems disingenuous to point out that they IIAC members are using a non registered “title” to which deliberately misinforms the true registration category of its members from public view, and then mention how highly regulated they are in the same breath, adding that it seeks no interference with “professionals who are subject to extensive and exhaustive regulatory oversight”.)

This begs the question of whether they are regulated at all,...or is the public being given a glimpse into a charade, an artifice or a pretense of regulation, whilst also seeing a glimpse into the behind the scenes organizational skills that support the charade?

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https://www.youtube.com/watch?v=KH6XMXlfdBw&t=198s
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Fri May 31, 2019 2:13 pm

Are things improving at IIROC?

IIROC handed down just 9 disciplinary decisions against Reps to April 30, 2019, which is on pace for just 27 decisions for a full year – well below the 42 disciplinary decisions against Reps rendered in 2018 and 37 in 2017.

However, IIROC’s 9 decisions involving individual Reps this year already have assessed more than $1 million in monetary penalties (including fines, disgorgement and costs) – which is on track with last year’s modest $3.2 million.

There was not a single disciplinary action against Members in the first 4 months of 2019. Individuals were required to pay $103K in disgorgement while Members were assessed zero as of April 30, 2019, the same as all of 2018. www.iiroc.ca/industry/enforcement/Pages/Statistics.aspx
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Thu May 23, 2019 9:13 pm

Charles Corlett
Director, Enforcement Litigation
Investment Industry Regulatory Organization of Canada Suite 2000, 121 King Street West
Toronto, ON M5H 3T9
ccorlett@iiroc.ca

May 7, 2019

Request for Comment Minor Contravention Program (MCP) and Early Resolution Offers (ERO) Initiative https://www.osc.gov.on.ca/documents/en/ ... otice-rfc- minor-contravention-program.pdf

I am really glad to have the opportunity to provide input on your proposals to accelerate the disposition of justice.

The Minor Contravention Program is an affront to investors. You are proposing to keep the names of wrongdoers secret but not to require them to compensate victims of the wrongdoing. Does IIROC really need investor input on that? Give me a break. Never forget, it is the dealer representatives that are providing advice to Canadians for their retirement security.

The ERO program wants to provide Brokers a deep discount for doing what is right. Apparently the extended negotiations are too much for enforcement staff. Solution: Follow the sanction guidelines, apply them fairly, fine wrongdoers and move on to the next case. According to the Cambridge dictionary a regulator is
" an official who makes certain that the companies who operate a system, such as the national electricity supply, work effectively and fairly”.

Stock brokers have been using discounting for decades when addressing client complaints. They go even further , sometimes offering nothing or 10 cents on the dollar unduly lost. When an investor hears the word discount it makes her/ him shudder.

How many times do I have to be exposed to executive VP's and Seniors Specialists?
Financial consumers need to be able to identify what sort of services and advice they can expect from financial planners or financial advisors, and need the clarity that will help them understand the knowledge, skills and abilities required for each.

Investors also need to know the conduct standard- suitability or fiduciary. This can only happen if there are clear, distinct definitions in law for both titles. If IIROC is so interested in fairness and proportionality why not take on title reform?

I should note also that whenever an investor wants to check out a broker they must read and agree to a five page Terms of Use agreement.
Does the Board think that is in the Public interest? Why torture ordinary Canadians just so they can learn more about their salesperson?


One final point - gag orders. When brokers attempt to stifle victims using gag orders, the mental anguish can be intolerable .It eats away at the mind for years after the event. Why doesn't IIROC prohibit the gagging of victims as a condition for getting their own money back?
I think my comments are clear about what I think about the Consultation document.
I definitely agree to posting this letter on your website. I want as many people as possible to read it.

Disappointed, Mildred Jagdeo
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Thu May 23, 2019 8:53 pm

IIROC’s Slush Fund

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The Investment Industry Regulatory Organization of Canada (IIROC) stated in its 2010 Annual Report1 that it held over $32-million in an “Externally Restricted ABCP Fund” derived from fines and interest, with disposition of the fund expected to be settled in fiscal year 2011. This is a substantial sum of money by anybody’s standards! Investors, their advisors and legislators should take the time to consider the issues surrounding this fund and determine whether legislative and procedural changes are desirable.

Very briefly, the funds are the result of fines levied against Scotia Capital2 ($29-million), Credential Securities3 ($200,000), and Cannaccord Financial4 ($3.1-million) for their roles in the August, 2007, collapse of the Canadian Non-Bank Asset-Backed Commercial Paper (ABCP) market. While the basis for levying the fines is fraught with interest, the main concern is IIROC’s conflicted roles as judge5, jury, prosecutor, investigator and, critically, determiner of the disposition of the proceeds of the fines.

The Legitimacy of the Fines
IIROC claims6 to have investigated “more than 100 investor complaints” but, oddly, not a single one of these complaints is specified in any of the three settlement agreements, nor is any kind of connection drawn between the substance of these complaints and the


(footnotes)
1 Investment Industry Regulatory Organization of Canada, Annual Report, 2009-2010, available on-line at http://www.iiroc.ca/English/NewsRoom/Pu ... 010_EN.pdf (accessed 2011-4-27)
2 Investment Industry Regulatory Organization of Canada, Settlement Agreement with Scotia Capital, 2009- 12-17, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... F5B926&Lan guage=en (accessed 2011-4-27)
3 Investment Industry Regulatory Organization of Canada, Settlement Agreement with Credential Securities Inc, 2009-12-17, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... 252F6EC5&L anguage=en (accessed 2011-4-27)
4 Investment Industry Regulatory Organization of Canada, Settlement Agreement with Canaccord Financial Ltd., 2009-12-16, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... B0BB256&La nguage=en (accessed 2011-4-27)
5 Hearing committee members are selected by “Corporate Governance Committee (a committee of the IIROC Board of Directors composed of Public Directors)”, serve a three year term and are eligible for reappointment. See IIROC, IIROC Hearing Committees: Nominations, IIROC Notice 10-0040, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... 7A11E47&La nguage=en (accessed 2011-5-20) Panel Members are selected by the “National Hearing Co-ordinator” from members of the hearing committee. The National Hearing Coordinator is the secretary of IIROC or his designate. See IIROC, Schedule C.1 to Transition Rule No. 1, available on-line at http://www.iiroc.ca/English/ComplianceS ... les_en.pdf (accessed 2011-5-22)
6 Annual Report 2009-2010, supra


agreements.
There are media reports7 that some investors were told it was “just as safe as GICs”. That is a clear misrepresentation, worthy of penalization by the regulators – but not a single advisor has ever been penalized by the regulators for such an assertion.


However, IIROC did produce an extraordinarily verbose report on the ABCP market and its collapse8 which emphasizes “suitability” as the standard for sale of investment products to retail clients without ever considering the question of concentration. In fact, the words “concentration” and “diversification” are both found exactly once in IIROC’s regulatory study and in both cases with reference to ABCP itself, not to the portfolios of the ultimate investors. The importance of portfolio diversification is well known to investment practitioners and academics9 but IIROC has an explicit goal of revising its compliance modules to focus on suitability issues.10
It seems quite clear that “suitability” needs to be replaced with some version of the Prudent Investor Rule11 – while I suggest that ABCP and many other things may be “suitable” for a retail investor’s account, a heavy concentration of just about anything is most imprudent.
IIROC proudly states12 that they may add “the account’s current investment portfolio composition, duration and risk level” as a suitability factor to the Client Relationship Model proposals, but it remains to be seen how this requirement will be monitored and enforced, if it is enacted.

Additionally, it is by now clear that, whatever the faults of ABCP, its credit quality was well within normal bounds – the three “Master Asset Vehicles” set up to receive the majority of the assets of the ABCP conduits have current credit ratings varying from BBB(low)(sf) to A(high) (sf).13 The collapse of the Canadian non-bank ABCP market was not a failure of credit quality so much as it was a failure of market liquidity.

(footnotes)
7 E.g., see Jonathan Chevreau, Lessons from the ABCP fiasco, National Post, 2008-4-25, available on-line at http://network.nationalpost.com/np/blog ... -the-abcp- fiasco.aspx (accessed 2011-4-28)
8 Investment Industry Regulatory Organization of Canada, Regulatory Study, Review and Recommendations concerning the manufacture and distribution by IIROC member firms of Third-Party Asset-Backed Commercial Paper in Canada, October 2008, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... BD27FADEA& Language=en (accessed 2011-4-27)
9 Eg, Kungl Vetenskapsakademien The Royal Swedish Academy of Sciences, This Year’s Laureates are Pioneers in the Theory of Financial Economics and Corporate Finance, Press Release 1990-10-15, available on-line at http://nobelprize.org/nobel_prizes/econ ... press.html (accessed 2011-4-28)
10 See
http://docs.iiroc.ca/DisplayDocument.as ... 5A9F0D1A&L anguage=en
11 E.g., Stewart E Sterk, Rethinking Trust Law Reform How Prudent is Modern Prudent Investor Doctrine?, Cardozo Legal Studies Research Paper No. 274, available on-line at http://papers.ssrn.com/sol3/papers.cfm? ... id=1476970 (accessed 2011-5-3)
12 IIROC, Proposals to implement the core principles of the Client Relationship Model, IIROC Notice 11- 0005, 2011-1-7, available on-line at http://sdocs.iiroc.ca/English/Documents ... 52e7-4c94- b55b-44e5236a1310_en.pdf (accessed 2011-5-8)
13 Dominion Bond Rating Service, DBRS Upgrades MAVI Class A-1 Notes and MAVII Class A-1 Notes to A(high)(sf), Press Release 2010-9-21, available on-line at http://www.dbrs.com/research/235412/master- asset-vehicle-i-and-master-asset-vehicle-ii/dbrs-upgrades-mavi-class-a-1-notes-and-mavii-class-a-1-notes- to-a-high-sf.pdf (accessed 2011-4-28) and various press releases related to Master Asset Vehicle Trust III issued by DBRS and listed on-line at http://www.dbrs.com/issuer/15188 (accessed 2011-4-28)



The Bank of Canada has since taken steps to improve the liquidity of the market in future crises14 as part of its efforts to encourage the development of the market.

The IIROC report stresses that dealer members are required to understand the underlying asset composition of instruments sold to their clients, but no action appears to have been taken against those who failed to investigate related financial instruments that they sold or recommended to clients, such as National Bank Money Market Fund, which held15 49.42% ABCP on March 31, 2007.


These peculiarities pale in comparison to the fine IIROC levied on Scotia Capital. The contravention cited consists of the fact that one part of the firm did not talk to another part of the firm – contrary to what is now Dealer Member Rule 29.1(ii), a ridiculous catch-all provision which states16 that “Dealer Members ...shall not engage in any business conduct or practice which is unbecoming or detrimental to the public interest.”

Such a fine for such an offense, which did not involve anybody outside the company, should be considered an affront to the most rudimentary notion of justice.


IIROC disputes17 the argument above, alleging other, clearer, contraventions – but language to support their position cannot be found in the settlement agreement, where one would expect to see references to specific chapter and verse of the Dealer Member Rules.
The notion that Scotia Capital “continued to sell Coventree ABCP without engaging ... other appropriate processes for the assessment of such emerging issues” could mean anything – and so means nothing, failing to serve the public interest.


To make matters worse, the settlement agreement specifically notes that Scotia Capital is “increasing the number of Compliance positions supporting the Respondent’s wholesale business,” and requires that a consultant report to IIROC regarding Scotia’s fulfillment of this action. One wonders how many of these new hires turned out to be former employees of IIROC!


In short, the degree to which the public interest has been served by IIROC in this matter is questionable.
Nevertheless IIROC’s fines, which with interest total over $32-million, are now sitting in IIROC’s coffers, awaiting IIROC’s disposition as determined by IIROC’s directors.

General Problems with “Proceeds of Crime” Laws

(footnotes)
14 Sss Lorie Zorn and Alejandro García, Central Bank Collateral Policy: Insights from Recent Experience, Bank of Canada Review, Spring 2011, available on-line at http://www.bankofcanada.ca/wp- content/uploads/2011/05/review_spring11.pdf (accessed 2011-5-20)
15 National Bank Securities, Semi-Annual Financial Statements, National Bank Funds, For the period from October 1, 2006 to March 31, 2007, available on-line vie http://www.sedar.com (accessed 2011-4-28)
16 Investment Industry Regulatory Organization of Canada, Dealer Member Rule 29 “Business Conduct”, available on-line at http://iiroc.knotia.ca/Knowledge/View/D ... 03341&tocI D=390 (accessed 2011-4-28)
17 Doug Harris, IIROC, personal communication 2011-5-20


The ability of IIROC’s board to determine the disposition of revenue derived from fines is directly analogous to current “Proceeds of Crime” legislation, under which assets can be seized by the state in a civil action and the proceeds disbursed for purposes of victim compensation, cost recovery and “grants”. According to the Ministry of the Attorney General,18 Organizations eligible for grants are designated by the act, including law enforcement agencies and Ontario government ministries, boards and commissions. These institutions must meet the established criteria and submit a project proposal outlining how the grant will assist victims of unlawful activities or prevent victimization.

As of August 2007, only about 25% of the funds seized under this legislation had gone to victims – about as much as was disbursed in these nebulous grants, which are outside the normal budgetary process.
The Toronto Star recently reported19 that the Peel Police Services Board bought “tens of thousands of dollars worth” of tickets to private “fundraisers for the arts” and to fundraising golf tournaments.

This conduct was excused by the head of the Peel board, Emil Kolb, on the grounds that the funds “come from crime funds. Not one red cent is taxpayer dollars.”
Most people will agree that funds of this nature regarded by the disbursement officers in such a light can more accurately be thought of as slush funds, used to further the private agendas of the officials, and should be eliminated as being contrary to the public interest.


But there are further problems beyond the simple disposition of seized funds, which are best exemplified by the continuing debate regarding asset forfeiture in the USA. One guide for law enforcement officials gives the primary argument supporting “the need for forfeiture” as “For many years law enforcement agencies around the nation have faced shrinking budgets ... asset forfeiture can assist in the budgeting realm”20 David Harris of the University of Pittsburgh points out that “police have an incentive to gear law enforcement toward crimes that will result in forfeitures ... the prospect of a big payoff has a corrupting influence on police priorities ... to the detriment of targeting less lucrative but more damaging street-level crimes”21

It is, of course, impossible to say for certain whether IIROC’s enforcement processes have been influenced by the prospect of levying large cash fines against corporations – but it is puzzling that after having received “more than 100 investor complaints”, they:

(footnotes)
18 Ontario Ministry of the Attorney General, An Update On the Civil Remedies Act, 2001, August 2007, available on-line at http://www.attorneygeneral.jus.gov.on.c ... Update.pdf (accessed 2011-4-28)
19 San Grewal, Peel police board spent thousands on mayors’ galas, 2011-3-7, available on-line at http://www.thestar.com/news/article/949 ... yors-galas (accessed 2011-4-28)
20 John L. Worrall, Asset Forfeiture, 2008, Center for Problem-Oriented Policing, available on-line at http://www.popcenter.org/Responses/asse ... ure/print/ (accessed 2011-4-28)
21 Mark Flatten, Risk vs. Rewards: Chandler police raise risk to officers as they chase lucrative out-of-town drug deals, The Goldwater Institute, 2011-3-14, available on-line at http://www.goldwaterinstitute.org/article/5796 (accessed 2011-4-29)



they:
• Did not name a single complainant
• Did not detail a single complaint
• Did not name a single individual whose conduct could be criticized
• Did not revoke a single license
• Did not identify specific conduct by Scotia Capital that harmed the public
• Reached an extremely vague settlement agreement behind closed doors.

The prospects of receiving a large cheque – rather than revoking a license or two – may influence IIROC’s conduct in the course of pursuing settlements. But what does IIROC do with the fines collected?
IIROC’s Track Record in Disposing of Fines

IIROC’s 2010 annual report lists two external initiatives funded by its “Externally Restricted Fund”: $282,000 to the Canadian Foundation for the Advancement of Investor Rights (“FAIR”), with a remaining commitment of $1.6-million and $201,000 to the “Funny Money project” (with a remaining commitment of $357,000). After these expenditures, along with $1.8-million in hearing panel-related costs and $224,000 on a Rule Book revision, (paid to or disbursed by IIROC staff), the balance in this fund was $27.4-million.

The Funny Money project seeks to address financial literacy issues amongst high-school students, focusing on22 “the day to day realities of paying the rent, properly using a credit card, budgeting for the basic necessities or investing for their futures.” The programme’s other sponsor is the Investor Education Fund (IEF),23 which is funded by24 settlements and fines from OSC enforcement proceedings.

The IEF states25 that “To be considered, these initiatives must contribute measurably to the development of consumers’ financial and investment know-how. The expected results from each project must be clear and measurable.” When questioned, the IEF was able to provide me with some very impressive figures regarding improvements in self-assessed student financial literacy as a result of Funny Money presentations; on a rather basic level, to be sure, but you have to start somewhere!

It is with respect to FAIR that an investigation of IIROC’s granting practices become most interesting. The founder and current Executive Director of FAIR is Ermanno Pascutto, who requested funding from one of IIROC’s predecessor organizations, Market Regulation Services (RS), at a time when he served on its board as an independent


(footnotes)
22 Funny Money Inc., Funny Money, available on-line at http://www.funnymoneyhighschools.com/Fu ... _info.html (accessed 2011-4-30)
23 Funny Money Inc. About Our Sponsors, available on-line at http://www.funnymoneyhighschools.com/Sponsors.html (accessed 2011-4-30)
24 Investor Education Fund, About Us, available on-line at http://www.getsmarteraboutmoney.ca/about- us/Pages/default.aspx (accessed 2011-4-30)
25 Investor Education Fund, Funding financial literacy, available on-line at http://www.getsmarteraboutmoney.ca/abou ... fault.aspx (accessed 2011-4-30)


director.26 ; the Investment Dealers’ Association (IDA) was also solicited for funds. He was able to secure a commitment for three years of funding to a maximum of $3.75- million.27

Mr. Pascutto was Executive Director of the Ontario Securities Commission (OSC) from 1984-89.28 Stanley Beck, FAIR chairman, was the Chair of the OSC from 1984-8929. Neil de Gelder, also on the board, was Executive Director of the British Columbia Securities Commission from 1987-90.30. Ed Waitzer, who was Chair of the OSC in 1993-9631, was a member of the founding board of FAIR.32 Ilana Singer, Deputy Director, was more recently with the OSC as the Senior Advisor, International Affairs.33 It is not particularly difficult to find career overlaps and parallels in the boards of the two granting agencies,34 35 which merged to become IIROC in 2008.36
26 FAIR Canada, Background, available on-line at http://faircanada.ca/about-us/background/ (accessed 2011-4-30)

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(footnotes)
27 IIROC, Annual Report 2008-2009, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... 077E6F8&La nguage=en (accessed 2011-5-4)
28 Troutman Sanders, Ermanno Pascutto, available on-line at http://www.troutmansanders.com/ermanno_pascutto/ (accessed 2011-4-30)
29 FAIR Canada, Stanley Beck, available on-line at http://faircanada.ca/about-us/governance-board-of- directors/stanley-m-beck-toronto-on/ (accessed 2011-5-4)
30 BC Discovery Fund, Neil de Gelder, Q.C., available on-line at http://www.discoverycapital.com/bcdf/di ... page=board (accessed 2011-4-30).
31 Christopher Guly, Corporate Social Responsibility – Securities Commission should take Leadership Role, The Lawyers Weekly, 2010-6-25, available on-line at http://canadian-lawyers.ca/Understand-Your- Legal-Issue/Corporate-Law/Corporate-Governance/Corporate-Social-Responsibility-Securities- commission-should-Take-Leadership-Role.html (accessed 2011-4-30)
32 FAIR Canada, Launch of Canadian Foundation for the Advancement of Investor Rights (FAIR Canada), Press Release 2008-9-29, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... 88E7E&Lang uage=en (accessed 2011-4-30)
33 FAIR Canada, FAIR Canada will be welcoming new Associate Director Ilana Singer, 2009-7-13, available on-line at http://faircanada.ca/top-news/fair-cana ... -director- ilana-singer/ (accessed 2011-5-3)
34 Regulation Services, Annual Report 2008, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... 811772E&La nguage=en (accessed 2011-5-6) Lavery de Billy, Jean Martel, Ad. E, available on-line at http://lavery.ca/lawyers-paralegals-not ... an-martel/ (accessed 2011-5-6) Lawyers.com, D. Grant Vingoe, available on-line at http://www.lawyers.com/New-York/New-Yor ... nt-Vingoe- 2251802-a.html (accessed 2011-5-6); Investment Executive, OSC's Wolburgh Jenah to head proposed new SRO, 2006-12-20, http://www.investmentexecutive.com/clie ... on=8&cat=8 (accessed 2011-5-6)
35 Investment Dealers’ Association, Annual Report 2008, available on-line at http://docs.iiroc.ca/DisplayDocument.as ... 3EB115&Lan guage=en (accessed 2011-5-6)
36 IIROC, Investment Dealers Association and Market Regulation Services Inc. Combine to Form Investment Industry Regulatory Organization of Canada – IIROC, Press Release, 2008-6-9, available on- line at


This heavy concentration of ex-regulators could, perhaps, be justified if FAIR was taking any meaningful action to gain credibility as a voice for the investors whose interests it claims to advance – but it is taking no such action.
FAIR has no social media presence, no membership and no formal mechanism of any kind in which it seeks to obtain the views of actual investors prior to pronouncing its position. To its credit, FAIR has added the founder of the Small Investor Protection Association (SIPA) to its board;37 but at best this confers only indirect legitimacy to FAIR.

Why have the regulators allocated $3.75-million to form an organization controlled by ex-regulators?
It is not necessary to conjure visions of members of the Old Regulators’ Club dispensing largesse to each other with public funds to criticize such a self- referential relationship. The establishment by regulators of an advocacy organization staffed by ex-regulators is a recipe for group-think; exacerbated by the fact that IIROC judges FAIR’s success by its impact on the regulatory process, the measurement of which includes the regulatory response to FAIR input and FAIR’s inclusion in regulatory initiatives.38 It is hard to imagine a more circular feedback mechanism than this, in which IIROC can burnish the perceived success of its funding of FAIR by including FAIR in IIROC deliberations!

The UK’s Warwick Commission has warned against over-reliance on like-minded individuals, however expert and apolitical,39 and emphasized that regulatory capture can be as much a matter of intellect as self-interest. The IMF blames groupthink for its shoddy performance in the prelude to the financial crisis.40 If IIROC wishes to improve regulation in Canada, it would be far better advised41 to fund an organization more likely to criticize it than to seek inclusion in its processes.

Instead, IIROC’s support of an extraordinarily well funded advocacy group may be viewed as an attempt to capture the public debate. Smaller groups, operating on miniscule budgets, will be forced to cooperate with FAIR to avoid having their voices completely drowned out.

http://docs.iiroc.ca/DisplayDocument.as ... B0A8EED&La nguage=en (accessed 2011-5-16)

(footnotes)
37 FAIR Canada, Stan Buell, available on-line at http://faircanada.ca/about-us/governance-board-of- directors/stan-i-buell/ (accessed 2011-5-7)
38 Doug Harris, IIROC, telephone conversation and eMail 2011-5-4.
39 The Report of the Second Warwick Commission, The Warwick Commission on International Financial Reform: In Praise of Unlevel Playing Fields, 2009, available on-line at http://www2.warwick.ac.uk/research/warw ... orm_09.pdf (accessed 2011-5-5)
40 Independent Evaluation Office of the International Monetary Fund, IMF Performance in the Run-Up to the Financial and Economic Crisis IMF Surveillance in 2004–07, 2011, available on-line at http://www.ieo-imf.org/eval/complete/pd ... crisis.pdf (accessed 2011-5-5)
41 Michael J. Prietula, Daniel Conway, The evolution of metanorms: quis custodiet ipsos custodes?, Comput. Math Organ Theory, doi:10.1007/s10588-009-9056-4 available on-line at http://www.casos.cs.cmu.edu/events/conf ... conway.pdf (accessed 2011-5-7)


If IIROC determines that an external advocacy group should be funded, the primary measure of success should be the achievement of credibility amongst actual retail investors. SIPA, for example, has over 500 members willing to spend $20 p.a. on membership;42 it is SIPA, with its credibility, that should be hiring former regulators for procedural expertise, not the other way ‘round! However, at the time that the concept of FAIR Canada was advanced, there was no announcement that the boards of the IDA and RS were considering the concept, no competition between different groups for the funding and no consultation with the investing public to determine who was considered best suited to receive this very generous grant. It was a single-source untendered contract.

What Should Be Done?
IIROC is levying enormous fines for obscure reasons despite the fact that a settlement process which does not identify specific wrongdoing and specific wrongdoers clearly does not serve the public interest. If a company has done wrong, it should be penalized, as should the individuals who made and executed the faulty decision; if it has done nothing wrong, it should not experience pressure to settle based on fear of adverse publicity and a costly investigation.

Settlement Agreements should be banned completely. The public interest is best served by an adversarial process addressing the issues in an open hearing. The investing public will then have a basis for deciding whether the punishment fits the crime – or whether a crime has actually occurred. To take one example, I am advised43 that it “was IIROC’s enforcement position that ABCP was not suitable for retail investors,” irrespective of its proportion in the portfolio; a viewpoint not reflected in the settlement agreements. IIROC had a clear responsibility to assert its view in a public, adversarial hearing – a responsibility that was ignored.
IIROC should not have discretion to award grants derived from fines as this places it in a very apparent conflict of interest. If extra-organizational funding is worthwhile, it should be part of the normal budgetary process; if it is not worthwhile it should not be funded even with so-called “crime funds.” All revenue derived from fines should be directed to the general revenues of the provinces, with shares determined as part of the recognition orders of the various securities commissions; this will introduce some badly needed accountability to these expenditures.

These changes will, of course, take time. In the interim, IIROC should show good faith by directing grants only to those institutions large enough and sufficiently disassociated from the regulatory process to be recognized as fully independent. A good start would be the endowment of academic chairs at Canadian universities, intended to foster research into the capital markets, particularly those of importance to Canada, and the regulation of these markets.

(footnotes)
42 Small Investor Protection Association, SIPA Membership, available on-line at http://www.sipa.ca/SIPAInc/membership.htm (accessed 2011-4-30)
43 Doug Harris, IIROC, personal communication 2011-5-20.


MS-Word version linked on PrefBlog at http://prefblog.com/?p=15806 , which has footnotes.
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Fri May 10, 2019 3:38 pm

IIROC, are you sure you are in the right business?

False Pretenses and/or Willful Blindness is not something on which to build a great reputation.

Toronto advisor fined for making unsuitable recommendations


From: https://www.investmentexecutive.com/new ... Relational

An Investment Industry Regulatory Organization of Canada (IIROC) hearing panel has suspended an investment advisor for 30 days and fined her $65,000 for making unsuitable recommendations associated with margin use and leveraged investing in the accounts of two senior clients.

Sheron Crane, a.k.a. Sheron Lau, was a dealing representative with the Toronto branch of Industrial Alliance Securities Inc. when the conduct occurred, from October 2014 to November 2016, IIROC said in a release.

If you missed the false pretense I will cut and paste the two conflicting lines below in quotations, to you can spot what is perhaps the world’s greatest bait and switch:

An Investment Industry Regulatory Organization of Canada (IIROC) hearing panel has suspended an investment advisor


and

Sheron Crane, a.k.a. Sheron Lau, was a dealing representative with the Toronto branch of Industrial Alliance Securities Inc.


===========

For those who are new to the game of systemic fraud and deception by industry participants, I will make this short and sweet. If you wish further info please read nearly two decades of history shown in the topics in the forum.

Moving to the actual IIROC SETTLEMENT AGREEMENT Document, ( http://www.iiroc.ca/documents/2019/6eff ... efe_en.pdf )

the following public deception methods can be see easily:

Firstly a search for the license and registration category of the sales agent "SHERON CRANE” at Industrial Alliance Securities shows on May 10th that she was no longer registered in the industry, but her last registration category was in the category of a “Dealing Representative”. (this is the category which was called “salesperson” until it was changed on Sept 18 of 2009 by the Canadian Securities Administrators. (see image of search below)

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Click on image to enlarge or zoom in for details
Click BACK to return to original

Of note is the the person in this case was registered in the registration category of a “Dealing representative”. Essentially this has always been a commission salesperson, and all industry members (including IIROC) have taken great steps to make sure that the public never learns of the true license category, or the true job description of their members.

It is illegal under Securities Acts to misrepresent one’s registration category, and it is a false pretenses under the criminal code to do so as well. Not to mention it may be false or misleading advertising within the Competition Act of Canada. Despite all those public protective measures, it is known that about 96% of persons who claim to be “advisors” in Canada, do not in fact, hold such registration. IIROC is a major “regulator” of those who misrepresent.

Screen Shot 2018-06-23 at 10.10.54 AM.png

Click on image to enlarge or zoom in for details
Click BACK to return to original

The illegality of this misrepresentation is found in Section 44 of the Ontario Securities Act, or Section 100 in Alberta, and so on in other provinces, but IIROC, as a “self” regulator does not follow these laws. IIROC is only allowed the privilege of being a self-regulatory body if they adhere to Securities Act law, however what they must do, and what they actually do is often two different things. Follow the money, not the rules...

Back to the IIROC SETTLEMENT AGREEMENT Document, ( http://www.iiroc.ca/documents/2019/6eff ... efe_en.pdf ) and lets look at how they (IIROC) help to mislead the public by concealing the true registration categories of investment salespersons.

A search of names that IIROC uses in their document shows the following:

“Respondent” is found mentioned 79 times in the document

“Advisor” or “Advisors” is mentioned just one (1) time

“Sales Charge” is mentioned one (1) time

“Salesperson” is not mentioned at all.

Dealing Representative” is not mentioned at all. (0)
(Dealing Representative is the true registration category in this case and it is not mentioned even ONE TIME)

“Registered Representative” is mentioned one time, and it’s intended opaqueness does not provide the details of the category of registration.

The false pretense that IIROC appears involved in, is that this “Self” regulator, does not one time publicly mention the true and factual category of registration of those it proclaims to regulate.


This reluctance of IIROC to meet the “Representation” requirements found in nearly all Canadian Securities Commissions, as well as it’s reluctance to police the “misrepresentation” terms found in almost all Securities Acts, points to a willingness to act in a manner resembling willful blindness by turning an intentional blind eye to fraudulent misrepresentations of persons posing to the public as financial professionals.

This is a failure of the conditions for IIROC to maintain its status as a self-regulatory body.

I wonder how the Securities Commissions will react to this news...when each Securities Commissions is also on the industry payroll...are they also in on the false pretense?

Screen Shot 2018-06-24 at 10.56.06 AM.png
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Sat May 04, 2019 3:57 pm

The Investment Dealers Association of Canada’s enforcement record: Are penalties grossly inadequate

Author(s):
Mark Lokanan (Newcastle Business School, Northumbria University, Newcastle, UK)
Abstract:
Purpose
– The purpose of this study is to analyze the aggravating and mitigating factors considered by the Investment Dealer Association (IDA)’s (Now IIROC) hearing panels when determining penalties.

Design/methodology/approach
– To conduct this research, Quicklaw’s database Securities Regulation Tribunal Decisions were searched for all decisions made by the IDA between January of 2003 and June of 2008. This paper analyzes the 238 cases that were found.

Findings
– The findings revealed that the IDA’s hearing panels were more likely to identify mitigating rather than aggravating factors when considering the appropriate penalties to be imposed on registrants. Perhaps this was because the hearing panels were more preoccupied with identifying mitigating factors that would, in turn, lead to less severe penalties for their members. The aggravating factors identified and considered were fewer in number than the aggravating factors identified but not considered by the hearing panels when imposing penalties.

Research limitations/implications
– IIROC needs to take stock of this study and encourage hearing panels to seriously take into consideration the factors listed in their sanction guidelines and apply them methodologically to each case.

Originality/value
– Despite the widespread use of self-regulatory organization (SROs) to regulate various occupations, SROs remain an understudied institution. This is the first study of its kind that looks at the aggravating and mitigating factors used by an SRO’s hearing panel in administrative hearings.

Keywords: Enforcement, Self-regulation, Aggravating and Mitigating Factors, Investment Dealer Association

Publisher: Emerald Group Publishing Limited

Acknowledgments:
The author would like to thank Professor Joan Brockman from the School of Criminology at Simon Fraser University in Canada for her advice throughout this study.


Citation: Mark Lokanan, (2014) "The Investment Dealers Association of Canada’s enforcement record: Are penalties grossly inadequate", Journal of Financial Regulation and Compliance, Vol. 22 Issue: 3, pp.235-251, https://doi.org/10.1108/JFRC-03-2013-0005

Downloads: The fulltext of this document has been downloaded 113 times since 2014
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Sat May 04, 2019 3:56 pm

Self-regulation and compliance enforcement practices by the Investment Dealers Association in Canada: 1984 to 2008

Author(s): Mark Lokanan , (Department of Management, Royal Roads University, Victoria, Canada)

Single Sentence Summary:

This paper examines the enforcement practices of the Investment Dealers Association of Canada (IDA) and suggests that when the interest of the public clashes with the interests of the IDA's members, the IDA puts its members first.

Abstract:

Purpose
This paper aims to examine the enforcement practices of the Investment Dealers Association of Canada (IDA) and argue that self-regulation simply does not work in the financial sector, as the sanctions available are neither applied with sufficient severity nor are the responsibilities for enforcement adequately divided between self-regulation, provincial securities commissions and the police.

Design/methodology/approach
The core compliance data for the study came from the IDA’s tribunal cases that were heard between 1984 and June 2008. The theoretical approach involves the invocation of classic articles by the likes of Stigler, Posner and Becker, the essence of whose conclusions is that institutions will act in their own best interests and cannot be expected to act in the public interest.

Findings
The findings show that over the period from 1984 to 2008, the severity of the sanctions increased consistently over the period. When penalty ceilings were increased, penalties increased. When in the latter phase of the period, public members (i.e. non-members of the industry) chaired the tribunals, penalties also increased.

Research limitations/implications
Researchers can use the data to write a paper which asks “Why did the IDA tribunal penalties increase so consistently with time?” Future research could canvass various possible explanations, including the one presented in this paper, to focus sustained attention on the issue of self-regulation.

Originality/value
This study is the first to systematically examine the enforcement performance of the IDA.

Keywords:
Fraud, Self-regulation, Securities enforcement, Public interest
Type:
Research Paper
Publisher:
Emerald Publishing Limited
Copyright:
© Emerald Publishing Limited 2017
Published by Emerald Publishing Limited
Licensed re-use rights only
Citation:

Mark Lokanan, (2017) "Self-regulation and compliance enforcement practices by the Investment Dealers Association in Canada: 1984 to 2008", Journal of Financial Regulation and Compliance, Vol. 25 Issue: 1, pp.2-21, https://doi.org/10.1108/JFRC-04-2016-0038
Downloads:
The fulltext of this document has been downloaded 194 times since 2017
Screen Shot 2019-05-04 at 4.58.52 PM.png
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Sat May 04, 2019 3:40 pm

As a participant, a professional and a researcher in the Canadian Investment industry since 1980, I can agree with Mark Lokanan’s careful observations. My own observations are that IIROC and the former IDA that it replaced, are responsible for equal or greater removals of wealth from Canadian society than is done by all the measured elements of RCMP observed organized crime syndicates in Canada.

This is an issue of serious harmful effects to our society, when private financial interests are able to retain their own privately hired police force, to police their activities among the public. It is nearly the perfect illustration of letting wolves guard the henhouse.

image-w1280.jpg



Screen Shot 2019-05-04 at 4.39.28 PM.png


An update on self-regulation in the Canadian securities industry (2009-2016):

Funnel in, funnel out and funnel away

Type: Research paper

Mark Lokanan
Journal of Financial Regulation and Compliance, Earlycite,

The Investment Dealers Association of Canada’s enforcement record: Are penalties grossly inadequate?
Type: Research paper
Mark Lokanan
Journal of Financial Regulation and Compliance, Volume: 22 Issue: 3, 2014

Self-regulation and compliance enforcement practices by the Investment Dealers Association in Canada: 1984 to 2008
Type: Research paper
Mark Lokanan
Journal of Financial Regulation and Compliance, Volume: 25 Issue: 1, 2017
https://www.emeraldinsight.com/author/Lokanan%2C+Mark
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Sat May 04, 2019 2:28 pm

An update on self-regulation in the Canadian securities industry (2009-2016): funnel in, funnel out, and funnel away
By Mark Lokanan

1. Introduction

The Investment Industry Regulatory Organization of Canada (IIROC) is a non-profit, national self-regulatory organization (SRO) that is responsible for policing debt and equity trading in Canada’s market places. IIROC currently has 28,000 registrants approved to work with its registered Member firms. As a national SRO, IIROC is responsible for setting its own education standards and regulatory requirements. Registered representatives and their respective Member firms are expected to comply with these standards and requirements or face disciplinary sanctions ranging from fines to permanent bans from the Association for non-compliance.
When IIROC replaced the Investment Dealers Association (IDA) in June of 2008, its justification for the name change was to free itself from the IDA’s baggage of lax regulation and weak enforcement (Lokanan, 2017a; Williams, 2012). As such, it is expected that IIROC with its increased enforcement budget and mandate, will continue to work with the provincial securities commissions, the RCMP’s Integrated Market Enforcement Team (IMET) and other SROs to protect investors and increase inefficiency in Canada’s capital markets. However, anecdotal evidence posits that IIROC is not holding registrants accountable to law and ethical standards (Gray and McFarland, 2017a, 2017b; Robertson and Cardoso, 2017). As a matter of fact, investors are still being swindled of their life savings by their advisors (Johnson, 2017) and punishment for such contraventions remains lax and inadequate (Lokanan, 2015a; Gray and McFarland, 2017a). Given that Canada does not have a national securities regulator, the investment industry is now in a precarious position and expects IIROC to take regulatory action on its registrants to ensure that their deficiencies are addressed and resolved.

On the basis of data from IIROC’s annual enforcement report, the present study will employ the SRO misconduct funnel that was developed by Brockman and McEwen (1990) and further refined by Brockman (2004) and Lokanan (2015a) to examine the enforcement of complaints by IIROC from 2009 to 2016. The misconduct funnel is the white-collar crime version of the crime funnel that was developed to show how the number of cases involving street crime shrinks as they are processed from arrest to sentencing through the criminal justice system (CJS) (Lokanan, 2015a, p. 457). In the same manner, the misconduct funnel shows the disposition of complaints from case assessment to prosecution through the SROs’ enforcement system and is built on three fundamental concepts: “funnel in”, “funnel out” and “funnel away” (Brockman and McEwen, 1990; Brockman, 2004; Lokanan, 2015a).

“Funnel in” tests the claim made by SROs that they enforce more complaints than would not have otherwise been enforced by government regulators (Brockman and McEwen, 1990, p. 3). “Funnel out” examines the prospects of offenders who might escape formal disciplinary actions and the potential leniency of penalties imposed on those who are formally sanctioned (Brockman, 204, p. 73). “Funnel away” examines the claim that SROs may divert cases with criminal elements away from the CJS to protect their members (Brockman and McEwen, 1990, p. 3). Given these claims, this paper attempts to answer the following questions: to what extent is IIROC holding market participants accountable to law and ethical standards?

In evaluating this question, the study makes two interrelated contributions to theory and practice. First, the study contributes to the literature on securities fraud and transgression in financial markets/security trading by examining the enforcement practices of the SRO that are at the forefront of regulating market participants in Canada - IIROC. Second, the issues discussed in this study are of significance to the wider public and policy interests in Canada. Canada is the only G7 country without a national securities regulator. As such, it is hard not to see the results from this study being part of a wider discussion by legislators in Ottawa to show the significance of a national securities regulator.

The rest of the paper proceeds according to the following format. The first section provides a brief overview of IIROC’s position in the wider context of securities regulation in Canada. The second section provides a critical review of the theoretical foundation and extant literature on self- regulation. The third section briefly describes the methodology used to collate and assemble the data used in the study. Section four provides an analysis of the findings. Finally, section five discusses the findings in relation to the literature and concludes by highlighting areas for future research.

2. Literature Review

2.1 Self-regulation and Industry Regulation

The theory of self-regulation is often touted as superior to government regulation, because self-regulatory regimes are able to scrutinize a wider variety of behaviours and achieve greater inspectorial depth than government regulation (Aussenegg, Jelic, and Ranzi, 2018; Lokanan, 2017a). SROs claim to “funnel in” and address more cases than public regulators through their enforcement systems (see Lokanan, 2014). Given that market fraud, integrity of financial reporting, and mis-selling are seen as some of the most significant ethical issues facing global financial markets, it would seem prudent to have industry members who are close to the issues brought about by these misconduct to address them (Cumming, Dannhauser, and Johan, 2015). As a matter of fact, recent research has shown that about 14% of firms engage in some form of market abuse (see Dyck, Morse, and Zingales, 2013). The overburdened criminal justice system (CJS) does not have the capacity to deal with the volume of market abuse cases, and unless they are very serious, the police will not touch these crimes (Williams, 2012; Lokanan, 2017a). By virtue of their specialized knowledge, SROs operating in financial markets may well be in a better position to “funnel in” more cases and address the misconduct that the police choose not to investigate (Brockman, 2004; Lokanan, 2015a). To facilitate the “funneling in” of more complaints, there needs to be more formalized cooperation between differing securities market authorities to effectively engage in the surveillance of market abuse (Cumming et al. 2018; Lokanan, 2015b).

Despite the arguments for industry self-regulation, the dynamics of the financial services professions and the evolving nature of the industry itself, makes the justifications for self- regulation somewhat hollow (Jordan and Hughes, 2007, p. 212). The most common criticism of SROs is that they are too lenient on their members and, rather than imposing proportional penalties for rule violations, they are being accused of imposing penalties that are so light, that they amount to nothing more than a regulatory wrist slap (Aussenegg et al., 2018; Brockman, 2004; Lokanan, 2014a). More recent findings show that the intensity of enforcement is the most statistically robust and economically significant predictor of market abuse (Cumming, Groh, and Johan, 2018). The governance of private enforcement, which is largely dominated by a homogenous group of players (such as large investment firms and banks), is partly the reason why the big players in the industry escape proportional sanctions (Lokanan, 2017b; Stenfors, 2018; Williams, 2018). These are all informed traders that predict the profits from corporate misconduct both in the short and long run (Bernile et al., 2015; Cummings et al., 2015). Altogether, it takes a combined effort by authorities to detect fraud and one cannot merely rely on regulators to catch all financial misconduct (Cumming, Johan, & Peter, 2018; Dyck et al., 2013; To, Treepongkaruna, and Wu, 2018).

A parallel criticism of SROs is that they deflect criminal complaints away from the CJS to protect their members from criminal prosecution (Brockman, 2004, p. 57). Complaints deflected from the CJS are more serious in nature and involve the selling of risky products and illegal bid spreads (see Cumming et al., 2018; Stenfors, 2018; Lokanan, 2017b). The introduction of innovative financial products such as Credit Default Swaps and Asset-Back Commercial Papers (ABCP), along with manipulation and bid-ask spreads in foreign exchange swap markets, have complicated the types of products that financial institutions now deal with (Cummings et al., 2018b; Lokanan and Sharma, 2018; Stenfors, 2018; To et al., 2018). Market participants looking to maximize their bottom line, package these products as securities and sell them to investors with zero or very little knowledge of the associated risks (Lokanan, 2017a; To et al., 2018). The financial penalties for these types of market abuses are higher than the more service type offences (see Lokanan, 2015a; 2017a). It may be that for these more serious offences, that enforcement was more vigorous because the minimum pecuniary fines per offence are usually higher (Cumming et al., 2018a; Lokanan, 2017b). In dealing with serious market abuse through private enforcement, SROs enmesh themselves in a conflict-of-interest by trying to protect their members and the public at the same time. The two eventually cannot be reconciled and may implode to the detriment of the public interest.

2.2 Differential Enforcement of Market Abuse and Global Finance

The International Financial Crisis (IFC) is widely recognized to have started in 2007 and became more pronounced in 2008. The IFC was accompanied with allegations of market misconduct and differential enforcement by country standards. In Canada, the enforcement mosaic, namely the Office of the Superintendent of Financial Institutions (OSFI), (as sponsors of commercial papers), the securities commissions (for conduits as issuers), and the SROs (for investment advisors as dealers), all served as authorities in charge of regulating financial institutions and their members (Cumming et al., 2015; Lokanan, 2015a; Williams, 2012). To a large extent, these regulators were all at fault for exposing investors to risky financial products through various investment vehicles, without conducting their collective due diligence on their suitability for investors (see Cumming et al. 2018b).

Canada is not unique in this governance structure that exacerbates financial market misconduct. The sub-prime mortgage crisis in the U.S. was partly blamed for the mixture of centralization and dispersion of authority of market regulation (Bernile, Sulaeman, and Wang, 2015; Lokanan, 2015b). In the U.S., the regulation of financial intermediaries is spread across the Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Controller of the Currency, and the Office of Thrift Supervision. In stark contrast to Canada, the regulation of the securities market is centralized at the SEC, who delegates self-regulatory duties to the Financial Industry Regulatory Authority (FINRA). This “peculiar mix” of private sector self-regulation, delegated governmental regulation, and government regulation worked together to derail effective regulation (Agrawal and Cooper, 2015; Karmel, 2008; To et al., 2018). Nowhere was this more evident than the sale of sub-prime derivatives leading up to the IFC in 2008. The deregulation push weakened banking industry regulations. This allowed commercial and investment banks to co-mingle with each other to create complex derivatives called Collateral Debt Obligations (CDO’s) and Collateralized Loan Obligations (CLOs). Investment brokers in the U.S. and all over the world, marketed these products to investors who themselves did not understand them (Aitken, Cumming and Zhan, 2015; Lokanan, 2017a; Cumming et al., 2015). Both government regulation and self-regulation were seen as equally responsible for the fiasco.

Unlike Canada and the U.S., the U.K., has a much stronger consolidation of regulatory authority under the the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). In the U.K. model, the Bank of England is in charge of financial stability, while prudential and market conduct regulations of market participation and financial institutions are centralized under the FCA. This tripartite regulatory structure is partly to blame for some of the market abuse in the U.K. (Aussenegg et al., 2018; Cumming et al., 2018a). In institutional apparatus with inter-agency conflict, formalized cooperation is an important tool for effective regulation of the financial markets (Cumming et al., 2015; Lokanan, 2015b). The FCA, as custodian of the financial system, has the unique advantage of being in a position to set industry standards and make sure that its members comply with those standards; but it has adopted a philosophy, which is to look at specific aspects of the market in isolation, rather than the aggregate picture. The LIBOR scandal and the manipulation of the FX swap market are examples of the FCA not looking systematically at financial market regulations (Lokanan and Sharma, 2018; Stenfors, 2018). These practices are inconsistent with the rules governing the financial industry, and provide further evidence that regulators – both SROs and the state -- wiped their hands of these issues until it was too late (Aussenegg, 2018; Cumming et al., 2018a; Lokanan, 2015a).

2.3 Enforcement of Market Abuse

Canada’s fragmented system of provincial securities regulators, police, and SROs makes it difficult to share data in a centralized pool in order to obtain an accurate picture on the enforcement of financial market misconduct by regions (Lokanan, 2017b; Williams, 2012). That said, one indicator the Canadian Securities Association (CSA)1 uses to gauge the level of enforcement activities in Canada is to look at the number of offences commenced and prosecuted by regulatory authorities. The CSA, in its 2016 annual enforcement report, noted a year-on-year increase in enforcement proceedings. According to the CSA, the three key SROs in Canada’s securities industry regulatory landscape - IIROC, the Chambre de la Sécurité Financière (CSF) and the Mutual Fund Dealers Association of Canada (MFDA), concluded 159 enforcement cases in 2016, compared with 139 cases in 2015 (CSA, 2016, p. 21). Also present is an increased focus on quasi-criminal proceedings. In 2017/18, the “courts in Alberta, Ontario, and Québec ordered jail terms under their respective securities acts. According to the CSA, 19 individuals received a total of over 29 years of jail time (17 individuals received over 33 years of jail time for the calendar year)” (CSA, 2018, p. 23). Eight cases were commenced under the Canadian Criminal Code by the provincial regulators (p. 24). In total, 11 individuals were found guilty under the Criminal Code - one each in British Columbia and Manitoba, three in Ontario, and six in Québec. Eight offenders received jail sentences totaling 14 years of jail time (p. 24). The sentences ranged from six months to four years (p. 24).

Policing the markets has always been a priority for those in charge of securities regulation in the U.S. The Securities and Exchange Commission (SEC), FINRA, and the listing exchanges have all been lauded for more vigorous enforcement of financial market abuse (Bernile et al., 2015; Bhattacharya, 2006; Lokanan, 2015a). The SEC’s strong crime control model, supported by a healthy budget and government support, allowed its enforcement team to bring 754 enforcement actions against market participants in 2017, down from 784 in 2016 (Securities and Exchange Commission, 2017, p. 6). Out of these, 196 were bars based on the Commission’s actions or action by the justice system and other regulators (p. 6). These results are not surprising considering that the SEC has jurisdictional reach, the financial resources, regulatory technology, and analytics to tackle financial misconduct (Bernile et al., 2015; Agrawal and Cooper, 2015). The SEC also has a strong extra-territorial presence and can take over cases that domestic regulators do nothing about.

Prior to the harmonization of rules governing the European securities market, it was very difficult to analyze market abuse across countries (Cumming et al., 2018a). Harmonization, the Markets in Financial Instruments Directive (MiFID II) and the Market Abuse Regulation (MAR) in Europe, have made it easier to analyze the enforcement of market abuse in the European countries (Aussenegg et al., 2018). While space does not permit a detailed analysis of the enforcement statistics of European countries, it would appear from the literature that has been assembled to date, that the intensity of enforcement and cooperation between securities market authorities are significant predictors of market abuse detection (Aussenegg et al., 2018; Cumming et al., 2018a; Stenfors, 2018).

Penalties have also become harsher under this new cooperative framework. For example, a breach of securities laws can lead to permanent bans, incarceration, and large financial penalties for offenders charged with serious market abuse offences (Aussenegg et al., 2018). For example, the LIBOR manipulation established the largest fraud activities in Europe to date (see Cumming et al., 2018; Lokanan and Sharma, 2018; Stenfors, 2018). Record fines and other non- monetary sanctions were imposed on the market participants who were found guilty of manipulating the markets in the LIBOR scandal (Cummings et al., 2018).

Taken together, Canada’s patchwork regulation and differential enforcement methods shape its lax regulatory penalties in market abuse cases. The SEC (as a centralized agency) on the other hand, has a long history of rigorous enforcement, while the FCA and the European regulators have a much shorter track record of success. The main point to be taken here is that there is no tailor made method to detect and prevent market abuse. Rather, securities regulators the world over, must endeavour to embrace regulatory approaches that are unique to their jurisdictions and operations. Irrespective of the approach taken, the focus must be on protecting investors and holding individuals accountable to law and ethical standards.

3. Methodology

Data for the study came from IIROC’s enforcement annual reports. Data were collected from 2009 (the first year of IIROC’s operation) to 2017. Three types of enforcement data were collected: data on complaints, data on violations and data on sanctions imposed on registrants. Data on complaints show the sources of the complaints and the most common types of complaints received by IIROC. The data on complaints also show the number of complaints that were assessed at the case assessment stage and then made their way through to investigations and prosecutions.

Data on violations were collected for infractions committed by IIROC’s individual registered representatives and Member firms. This type of data shows the types and frequency of offenses committed by IIROC’s representatives. Data on penalties imposed were collected for both individual offenders and Member firms. Enforcement data were collected for both monetary (i.e., fines, cost, disgorgement) and non-monetary (i.e., suspension, bans, warning letters and termination) penalties imposed on registrants.

4. Findings

Proposition 1: IIROC “funnel in” and scrutinizes on a wide variety of complains and ensure higher standards than government regulators.
Figure 1 shows the main sources of complaints that were “funneled in” from the Complaints and Settlement Reporting System (ComSet). ComSet’s share of complaints in 2009- 2016 varied from 73% to 83% of the total number of complaints received. The next important source of complaints is the Public, which fluctuated from a high of 18% in 2009 to a low of 14% in 2016. Note also that the total number of complaints was generally decreasing during the period analyzed, with 2,536 complaints received in 2009 and only 1,459 complaints received in 2016.


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Figure 1: Sources of complaints

Figure 2 shows the most common type of complaints received by case assessment staff for the time periodunderexamination. Unauthorizedanddiscretionarytradingcomplaintswereatahighin2009(369) before they declined to 12 in 2016. IIROC’s increased scrutiny of suitability issues over the past five years may have led to cases previously identified as unauthorized trading to be processed as suitability issues (Langton, 2013, para. 13). Complaints related to misrepresentation declined from 335 in 2009 to seven in 2016. There are a couple of other caveats to these numbers that are worth explaining. In 2011, IIROC changed its complaints handling procedures. Up to that point, IIROC’s enforcement department dealt directly with all public complaints. In mid-2011, IIROC formed a new internal complaints handing team to filter complaints so that enforcement staff only deal with cases involving genuine regulatory issues (Langton, 2013, para. 13). As such, the overall decline in the top three complaints may be the result of IIROC’s new procedures to handle public complaints.


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Figure 2: Top Three Complaints Received by IIROC

Proposition 2: Offenders escapes disciplinary sanctions by being “funneled out” from IIROC’s enforcement system and the potential for leniency exists when penalties are imposed for their misconduct.

4.2 From Complaints to Investigation and Prosecution

Once a case enters the enforcement system, there is the possibility that the offender may escape disciplinary sanctions by being “funneled out” with light regulatory penalties (Brockman, 2004; Lokanan, 2015a). Before the complaints meet a hearing panel, they must first go through additional hurdles in the investigation and prosecution stages (Brockman, 2004, p. 73). Figure 3 below shows that the number of initial complaints shrinks significantly from the complaints stage before they reach investigation and prosecution. As is clear from Figure 3, the share of investigations completed seems to be decreasing with time, possibly because they were funneled out at the complaint stage (Lokanan, 2015a). Notably, this is accompanied with the decrease in the total number of complaints received – but notes also that the number of investigations completed is falling even faster, resulting in this decreasing share of investigations completed.

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Figure 3: Number of complaints that reached investigation and prosecution by year.

It should be pointed out that investigations and prosecutions are carried out with some time lag after the corresponding complaint was received.2 As such, the high number of investigations in 2010 (425 investigations) might be due to the high number of complaints (that spilled over from) the previous year – 2009 (2,536 complaints). This may explain the high proportion of investigations in 2010 (23%), as well as the low proportion of prosecution decisions in 2009 (2%). It could be that investigation staff did not receive all the evidence and/or had the time and resources to deal with all of the complaints in 2009. The decisions rendered, therefore, most likely include complaints received in previous years.

The next step of the analysis includes tracking of the flow of complaints for the whole period 2009-2016. As can be seen in Figure 4, from the total number of 13,793 complaints received during this period, only 1,767 (13%) investigations were completed and 457 (3%) prosecution decisions were rendered. Considering IIROC’s claim that it takes complaints handling seriously, Figure 4 shows that the number of complaints shrinks significantly from the initial complaints to investigations and then to prosecutions.

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Figure 4: Number of complaints that reached investigation and prosecution in 2009-2016


4.3 The Funnel Process: Funnel Away

Proposition 3: To protect its members from coming into contact with the Criminal Justice System (CJS), IIROC “funnel away” criminal code complaints by dealing wit h them internally.

The “funnel away” component of the regulatory funnel is concerned with the deflection of complaints from the CJS by SROs (Brockman and McEwen, 1990; Lokanan, 2015a). Under this claim, it is expected that IIROC will deal with cases involving fraud, misappropriation of funds and forgery internally rather than sending them to the CJS for criminal prosecution (Lokanan, 2015a). As can be seen in Table 1, IIROC’s enforcement department “funneled away” about 9% of cases involving criminal elements – misappropriation of funds, forgery and fraud. By definition, these are all criminal code offenses and should have been referred to the CJS for criminal prosecution (see Lokanan, 2015a). One can infer from these findings that registrants are involved in widespread criminal practices and very few end up in a criminal court. The most striking feature is not so much in the proportion of a single type of offenses committed by individual offenders, but the seriousness of the types of offenses that IIROC dealt with internally.


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Table 1: Proportion of different types of individual violations




There are many other types of violations committed by individual offenders, but most of them are quite rare. What is most striking in Table 1 is the number and type of cases IIROC is taking on. IIROC seems to have stepped up enforcement on suitability cases that involve more serious wrongdoing and causes the most financial harm to market participants (Langton, 2013; Lokanan, 2015a). For individuals, suitability/due diligence violations are the most common violations, accounting for 26% of all individual offenses and vary significantly from a high of 30% in 2009 to about 27% in 2016, with fluctuations in-between years. This is not surprising taking into consideration that suitability violations were the complaint most often documented at the case assessment stage. Another offense type that was registered very often between 2009 and 2016 is “Inappropriate financial dealings.” As can be seen in Table 1, inappropriate financial dealings vary consistently between 2009 and 2016. Note also that, during the last years (2015-2016), the proportion of “Discretionary trading” violation increased and become the second most widespread offense type, accounting for 13-14% of the total number of individual violations. Other violations do not show any noteworthy trends or patterns and do not exceed ten cases per year.

For firms, violations related to supervision were much more frequent. As can be seen in Table 2, the supervision offenses increase steadily from 2010 to 2016, from a low of 33.3% to a high of 50% (41.9% on average). That said, however, capital deficiency violations outweighed supervision issues in 2009, when seven such cases were registered (43.8%). In total, capital deficiency offenses accounted for 15.3% of all firm violations, on average. Violations related to internal controls offense occurred regularly between 2009 and 2016 and accounted, on average, for 13.3% of all firm violations during the period examined.



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Table 2: Shares of different types of firm violations

Next, correlations of the different types of violations were analyzed. Figure 5 shows the top-12 type of violations for both individuals and firms. The correlation matrix in Figure 5 depicts visually as well as numerically the magnitude (or strength) of correlation between top investment violations. The size of the circles reflects absolute value of correlation. Positive relationships are depicted with blue color and negative relations are depicted with red color. The significance of the correlation can be seen in Table 5 below. A p-value that is below 0.05 (marked with red in the table) indicates that the correlation is significant.

As can be seen in Figure 5 and Table 3, the cases with criminal elements that are funneled away from the CJS show high positive correlations with other regulatory offenses. A high positive correlation is observed between forgery and misrepresentation violations (0.75). Misappropriation is also highly correlated with inappropriate financial dealings (0.68) and manipulation/deceptive trading (0.63). In terms of the other significant violations, individual supervision violations show significant negative correlation (-0.76) with gatekeeper violations. Consequently, the more supervision violations are observed, the less is the number of gatekeeper violations in the respective year. Additionally, higher number of individual supervision violations is associated with higher number of discretionary trading violations (0.57), lower number of inappropriate financial dealings (-0.5) and lower number of misrepresentations (-0.4). Note also that the much more grey area offenses, such as unauthorized trading violations, are associated with discretionary trading (0.55). Only one type of firm violations appeared to be in the top-12 violations by quantity, and that is violations related to supervision issues (supervision firm as named in the figure below). This is not surprising considering that supervision was the top offense that IIROC’s Member firms violated (e.g., see Lokanan, 2015a).




Figure 5: Correlation matrix for top-12 individual and firm violations

Table 3: P-values for the correlations between top violations
Failure to cooperate Forgery
(visit this site for Table 3 https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y

4.5 Sanctions
4.5. 1 Costs, fines and disgorgement


IIROC hearing panels imposed both monetary (costs, fines, disgorgement) and non- monetary (suspensions, conditions, warning letters, permanent bar and termination) sanctions for transgressions. The analysis on penalties starts with the financial sanctions. As is evident from Figure 6, the main financial sanction imposed on both individuals and firms was fines. The total amount of fines imposed is much higher than the amount of costs and disgorgements.

Figure 6: Total amount of costs, fines and disgorgement for individuals and firms in 2009-2016
(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y

Given that the total amount of financial sanctions depends not only on the size of the fines, costs and disgorgement, but also on the number of cases, an analysis of the average amounts of different financial sanctions imposed on the offenders was conducted. As can be seen in Figure 7, for individual offenders, the total amount of all financial sanctions imposed within one decision was equal to $103K, on average. Average costs and disgorgement were more or less equal throughout the period analyzed, while fines were significantly higher on average during 2011-2013 with the maximum average fine being $194K in 2012. The lowest average amount of fines applied to individuals was observed in 2009 ($54.8K).

Figure 7 also shows the financial penalties imposed on firms. The total amount of all financial sanctions imposed within one prosecution decision was equal to $383K, on average. It should be noted that the average is overestimated here due to unusually high fines in 2009 ($2.17M). Thus, for the period 2010-2016, the average amount of all financial sanctions applied per one case would be $124K. Similar to the individuals’ cases, the average costs and disgorgement for firms did not vary much during 2009-2016.




Figure 7: Average amount of costs, fines and disgorgement for individuals and firms in 2009-2016
(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y


The seemingly tougher line taken on individuals is not reflected in IIROC’s action against Member firms (see also Langton, 2013). As can be seen in Table 4, the number of decisions taken against Member firms declined significantly to six in 2016 from a high of 15 in 2019. IIROC it appears, seems to be going after individual offenders more vigorously, rather than the root causes of the problem, the Member firms.
(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y
Figure 8 presents the fine collection rates for both individual offenders and Member firms. Interestingly, the fine collection rate differs significantly between firms and individuals. While firms almost always pay most of their fines (collection rate varies between 74% in 2017 and 100% in 2013 – 2014, 2016), individuals are unlikely to repay the full amount of fines imposed (see Williams, 2012; Lokanan, 2015a). A closer look at Figure 8 shows that the fine collection rate varies from a low of 8.3% in 2016 to a high of 21.3% in 2014 and then decreases again to about 10% in 2017.



(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y
Figure 8: Fine collection rate for individuals and firms in 2012-2017

Figure 9 shows the amount of fines imposed and collected for both individual offenders and Member firms. Note that the average amount of fines imposed per year (for all individual advisors cases) was $4,726K, while the average amount of fines collected per year (for all cases) was $758K. The average amount of fines collected per case was $16.5K. Fines imposed against individual advisors went unpaid because IIROC does not have the statutory authority to go after offenders (Lokanan, 2017a; Robertson and Cardoso, 2017). Furthermore, an advisor who had been disciplined by IIROC “could evade his or her penalties by leaving the investment industry” indefinitely (Langton, 2017, para. 8). Member firms pay their fines because they have to comply with IROC rules to stay in business or face permanent suspension (Lokanan, 2014a; Shecter, 2017).



(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y
Figure 9: Amount of fines imposed and collected from individuals and firms in 2012-2016


4.5.2 Non-monetarySanction

Considering IIROC’s inability to collect fines from individual offenders, the size of the fines imposed can be a misleading indicator of enforcement intensity (Langton, 2013, para. 9). The other major sanction that IIROC has in its enforcement arsenal is to kick wayward offenders out (permanent bars) or sideline them through a suspension. As can be seen in Figure 10, the use of suspension rose steadily before decreasing in 2016. Although the use of permanent bars declined starting from 2010, temporary suspension rose notably from year-over-year. The increase in suspension orders indicates that violators are not just losing money; they are also costing them time away from the industry (Langton, 2013, para. 11). However, the tougher stance against individual misconduct does not seem to be applied to Member firms. A closer look at Figure 10 shows that permanent suspension was used more often than termination to secure compliance (see Lokanan, 2015a).




(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y
Figure 10: Sanctions for individuals (right chart) and firms (left chart) in 2009-2016
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4.6 Correlations
In this part of the analysis correlations between different sanctions for both individuals
and firms were analyzed. The results are depicted on the correlation matrices in Figure 10, while
the p-value for the correlation is shown in Table 5. For individual sanctions, the following
significant correlations are observed at p-value < 0.05. There seems to be a weak negative
correlation between number of suspensions and average costs (-0.49) and number of conditions
and permanent bars (-0.45). Figure 10 also show a strong positive correlation between number of
conditions and average disgorgement (0.69).



(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y

Figure 10: Correlation matrix for individual sanctions. Table 5: P-values for the correlations between individual sanctions

Average disgorgement
Average fine
(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y


Figure 11 presents the correlation matrix for sanctions imposed on firms at p-value < 0.05). There is a strong positive correlation between average fines and cost (0.76). This finding indicates that IIROC’s hearing panels may impose harsher fines for investigations that are costly. There are negative correlations between average costs and number of terminations (-0.45) and between number of terminations and permanent suspensions (-0.41).

(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y




Figure 11: Correlation matrix for firm sanctions Table 6: P-values for the correlations between firm sanctions
0.017 0.065
0.037 0.338 0.134 0.028


5. Discussion and Conclusion

This study employed the SRO’s misconduct funnel to examine the processing of complaints from initial screening to final case disposition by IIROC’s enforcement team. While there is no basis on which to compare whether IIROC “funneled in” more complaints than
government regulators, the findings indicate that ComSet were able to handle a significant



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Average disgorgement Average fine
(visit this site for image https://viurrspace.ca/bitstream/handle/10613/6069/IIROC_Funnel_Study_JFRC.pdf?sequence=5&isAllowed=y


proportion of complaints in a timely manner. IIROC, it seems, is better able to position itself to scrutinize a wider variety of complaints through the ComSet reporting system and, in so doing, achieve greater inspectorial depth than government regulators (Williams, 2012; Lokanan, 2017a). It is hard to fathom that government regulators will address 13,793 regulatory complaints during the period examined in this study. Additionally, compliance issues relating to complaints from client to Member firms are also reported through ComSet. The existence of so many sources for investors to report complaints is in itself significant.

That said, a significant proportion of complaints were “funneled out” at the investigation and prosecution stages of the enforcement process. As was evident in Figure 4, investigation only received 13% of the cases that came through IIROC’s reporting system and only 3% made their way through to prosecution. These findings imply that about 97% of the cases were “funneled out” by the time they reached prosecution. The funneling out of cases before they reach a hearing panel gives the appearance of lenient enforcement and sends the wrong message about IIROC’s seriousness to protect the public interest (Johnson, 2017).

The claim that SROs “funnel away” complaints with criminal elements attached to them seems to have merit in IIROC’s enforcement of complaints. While only three (0.5%) fraud cases were funnelled away during the time period examined, 26 (4.4%) misappropriation and 25 (4.2%) forgery or falsification of documents cases were dealt with internally by IIROC’s enforcement staff. IIROC may have legitimate reasons to address these cases internally because IMET cannot be bothered to look at complex criminal capital market fraud offenses (Rosen and Rosen, 2010; Williams, 2012). However, others argue that these cases are dealt with internally because of the difficulty in securing a conviction in criminal courts (Gray and McFarland, 2017a; Lokanan, 2017a). Many Crown attorneys operating with scarce resources prefer cases with sound bites (e.g., stabbing or shooting) rather than capital market fraud cases where the evidentiary burden makes them difficult to prosecute (Gray and McFarland, 2017a, para. 29).

It should not be a surprise then that the cases which end up at the bottom of the misconduct funnel involve fraud, forgery and misappropriation of funds (Lokanan, 2015a). Indeed, these are the most serious cases and undoubtedly have negative impacts on investors and the financial markets. The fact that they are the most egregious cases, however, does not mean that they are more significant from a regulatory perspective (Lokanan, 2015a, p. 475). While the harm to investors from these fairly conventional criminal activities may be significant, they are “dwarfed by the much larger problem of unsuitable investment advice as well as unauthorized and discretionary trading” cases that make up about 40% of the cases that the IIROC dealt with between 2009 and 2016 (Lokanan, 2015a, p. 475).

Fines imposed pale in comparisons to the maximum fines per contravention. Considering that a maximum of $5 million in fines can be imposed per offense and the average fines imposed on disciplined individuals and Member firms were $103K and 383K, respectively, per decision, this only equates to two and eight percent of the proportion of fines imposed. Such lax enforcement does not send a sufficiently strong deterrent message that IIROC is serious about protecting investors from unscrupulous investment advisers (Rosen and Rosen, 2010; Williams, 2012; Lokanan, 2014a). A closer look at Table 1 shows that more than 50% of all violations committed by individual offenders involved suitability requirements, misrepresentation, discretionary and unauthorized trading. These are very serious offenses whose frequency of occurrence drives prosecution activities (Lokanan, 2017a). Yet, the penalties imposed are not proportionate to the harm caused by these offenses.

The top two Member firms’ offenses made up 57% of all offenses that IIROC dealt with. Not surprisingly, they are supervision and capital deficiency offenses, both of which have been flagged previously as “hot spots” that IIROC needs to address (Lokanan, 2015b; 2017a). As was pointed out in earlier research of the IDA (Rosen and Rosen, 2010; Williams, 2012; Lokanan, 2014a; 2015b; 2017a), without robust enforcement, the rules do not matter. Given how few investors’ complaints made it to the bottom of the funnel, one would expect firms to be more vigilant with employees’ supervision. The real issues, it would seem, lie with dealer compensation practices and weak (and even conflicted) supervision that incentivizes investment representatives who maximize the firms’ bottom line (Lokanan, 2014a; 2017a).
Another key issue from the findings is fine collection. As can be seen in Figure 8, Member firms almost always pay their fine, while individual offenders pay a fraction of the fines levied on them. These findings indicate that IIROC’s system of compliance is not providing enough deterrence to make a dent in financial crimes in Canada. Recognizing the impact of unpaid fines, investors’ advocacy groups and the IIROC have been advocating for legal authority to collect outstanding fines in courts so that it can more effectively enforce its rules on offenders in a consistent manner. IIROC has been successful in securing legal authority to go after unpaid fines in Ontario, Alberta, Quebec, Prince Edward Island, Manitoba, and British Columbia. The real issue, however, is who gets the money when unpaid fines are collected? Will the increased funds be available for investor protection? Will they be distributed to investors who lost money from these investment scams? These are all questions that can form useful research agendas.

5.1 Limitations of the Study

The study suffers from a few limitations. First, the paper only looks at data that were initially assessed by IIROC from various sources and made their way through its enforcement system. The cases where firms underreported complaints to ComSet or chose to deal with them internally is missing from the analysis (Lokanan, 2017a). Second, the paper only deals with cases that came to the attention of IIROC’s case assessment team and are considered regulatory matters, which, in effect, limits the referrals sent through to enforcement (Karpoff et al., 2004). The paper does not deal with cases that were referred to the CJS and provincial securities commission for criminal or regulatory actions (Karpoff et al., 2004; Lokanan, 2015a). Third, the data does not include extraneous cases; rather, the data deal with enforcement outcome only (i.e., disciplinary actions taken against individual offenders and Member firms) (Lokanan, 2017a).

1 The CSA is the umbrella organization for Canada’s provincial securities regulators
2 Even though investigations completed and prosecution decisions rendered are analyzed as share from the complaints received, it is believed that, due to the time lag, these investigations/prosecutions are not only from the current year. In other words, prosecution decisions rendered in 2016 might be for the complaints received in 2014- 2015.

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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Tue Apr 25, 2017 6:48 pm

http://business.financialpost.com/fp-co ... ted-bodies

Screen Shot 2017-04-25 at 7.47.28 PM.png


Labour productivity among Canadian professionals is in the bottom fifth among all sectors

A cautionary tale for Canada is unfolding in a U.S. Supreme Court case that pits a David (small businesses that provide teeth whitening) against a Goliath (professional dentists) who wants them to stop. Could a similar case arise in Canada that involves shutting the door on competition? Yes, unless the provinces enact rules to ensure professional bodies don’t push the limits of their power to prevent or lessen competition in their lines of business.

The U.S. Supreme Court case may dramatically alter the landscape for professionals in that country. Enter the North Carolina State Board of Dental Examiners, who has initiated a legal fight over the fact that more people are whitening their teeth at spas and kiosks using cosmetic products instead of going to dentists who charge considerably more for their services. The Board began sending cease-and-desist letters to cosmetologists. Cosmetologists responded by complaining to the Federal Trade Commission, which commenced anti-trust action against the Board. The Board bases its authority to restrict cosmetologist’s teeth whitening on a 1943 Supreme Court decision that provides it with certain immunity from antitrust prosecutions.

In Canada, we have plenty of potential Goliaths. There are hundreds of self-regulated bodies that derive their authority to restrict economic activity within their space, mostly from provincial governments. Such bodies have immunity from competition laws, just as North Carolina’s dentists believe they have immunity under case law dealing with competition and regulation. Immunity from competition law allows them to act as de facto monopolies, in the case of the Dental Examiners claiming the exclusive right to practice a cosmetic procedure that most would consider ancillary or only tangential to the core expertise involved in provision of dental services.

Many professions are well-recognized fields, which include designations such as chartered accounting, law, medicine, etc. The number of self-regulating organizations is growing. The Ontario government, for example, has delegated administrative or quasi-judicial functions to more than 80 bodies, and plans to do more delegation through the Delegated Administrative Authorities Act. These groups have the power to devise and enforce the rules governing a professional’s relationship with her clients.


The capacity to self-regulate is a highly sought after power among occupations aspiring towards the status of professionalism. The mere fact of self-regulation enhances the credibility and standing of an occupation and its members in the eyes of consumers. Rulemaking or rule-enforcing powers grant autonomy and self-determination to professionals.

But problems can arise from self-regulation. Self-regulatory rules can grant economic power to such groups beyond the ability to certify, discipline or maintain the competence of their members. The case from North Carolina illustrates the ever-present problem with rent-seeking by a professional organization and the zealous desire by professional associations to protect their rents by relying on self-regulatory powers.

When self-regulating bodies have rulemaking or discretionary powers over professionals, they can often take steps that do not help consumers or, at worst, are directly contrary to their interests. The result can be undue limits on innovation, restrictions on competition or entry, and accumulation of economic power in the hands of small, politically established groups of professionals.

What’s the economic result? A recent study by the Competition Bureau found that labour productivity among Canadian professionals is in the bottom fifth of labour productivity among all sectors in the economy.

We expect that professional bodies make decisions that enhance economic outcomes for all Canadians. There is a certain social and political responsibility that comes with the status of professional, in many cases a fiduciary obligation.
Many Canadian governments are only giving token consideration to consumers when enacting legislation that delegates rulemaking or rule-enforcing authority, to an increasing number of occupations.

When we stop to examine the incentives at play, Canadians should be asking if delegation and self-regulation are the most consumer-friendly options. Should professionals of all stripes be granted more autonomy?

Consumers and small businesses should be paying attention to this issue as it has a direct impact on affordability of many services purchased by them, including things as diverse as hairstyling and real estate (the former will see more heated enforcement against unlicensed hairstylists with dubious rationales for public protection).

Provincial governments should take stronger steps to ensure that self-regulating organizations are using their rights and privileges to promote the public interest and not to restrict competition or limit innovation in the service sector.
These steps include consultation with the Competition Bureau and other consumer protection organizations on the delegation of statutory powers and the possible effects that such delegation can have on competition. Provinces should ensure that any regulations created or enforced by self-regulating organizations are minimally restrictive to competition.

If the public is to have continued faith in professionals and professionalism, provincial governments should ensure that the rules governing self-regulating professionals do not put the interests of industry insiders ahead of consumers.

Robert Mysicka is the author of a recent C.D. Howe Institute Commentary “Who Watches the Watchmen? The Role of the Self-Regulator.”
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Tue Apr 25, 2017 8:19 am

http://insurance-journal.ca/article/iir ... s-in-2016/

IIROC acts more like an insulator between the investment industry, and being held accountable for crimes like fraud and forgery etc.

It serves to help protect financial crimes and systemic organized schemes to defraud the public from any police or prosecutor involvement. It is the perfect barrier (among many) to aid in high value organized criminal activity.

Screen Shot 2017-04-25 at 9.18.48 AM.png


IIROC only collected eight per cent of fines against individuals in 2016
http://insurance-journal.ca/article/iir ... s-in-2016/

The Investment Industry Regulatory Organization of Canada (IIROC) published its annual Enforcement Report on April 19. The report shows the regulator was only able to collect eight per cent of the fines against individuals across the country, an almost 50 per cent drop from 2015.

Total sanctions imposed by IIROC on disciplined individuals increased year over year - $3.12 million in 2016 up from $2.95 million in 2015, noted the report. However, while IIROC collected 100 per cent of the fines it imposed against firms, the regulator says its inability to collect from most sanctioned individuals demonstrates its need for more enforcement authority. “This collection rate illustrates the importance of IIROC obtaining additional legal authority from various provincial and territorial governments to improve fine collection and other enforcement actions,” said the regulator in an announcement.





Unsuitable investments top complaint

In terms of enforcement activity during 2016, IIROC reports that it completed 138 investigations compared to 124 in 2015. The regulator began 55 proceedings in 2016, a 25 per cent increase from 2015.







IIROC also saw a year-over-year increase in the total number of complaints received with 1,459 in 2016, compared to 1,341 the year prior. Unsuitable investments continued to be the top complaint received and prosecuted by IIROC with suitability cases representing 37 per cent of complaints and more than 40 per cent of its regulatory prosecutions.

Legal authority to collect disciplinary fines

Earlier this year, the Prince Edward Island Office of the Superintendent of Securities granted IIROC the legal authority to collect disciplinary fines directly through the Supreme Court of PEI. On March 31, the Ontario government announced its intention to introduce legislative amendments to give IIROC the ability to pursue the collection of disciplinary fines directly through the courts.

"We appreciate the ongoing support of our regulatory and government partners in our quest to strengthen our enforcement abilities and to ensure a consistent level of investor protection across Canada," said IIROC President and CEO Andrew J. Kriegler.

"IIROC is urging other provincial governments to make similar legislative changes so investors can be confident that investment firms and individuals will comply with IIROC's regulatory rules and we can improve the effectiveness of our investigations and prosecutions bringing wrongdoers to justice."
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Mon Nov 28, 2016 2:37 pm

IIROC’S SLUSH FUND
James Hymas / June 1, 2011

Screen Shot 2016-11-28 at 2.36.11 PM.png



IIROC currently holds over $32 million in an Externally Restricted ABCP Fund derived from fines and interest – a substantial sum of money by anybody’s standards. With IIROC expected to settle the disposition of the fund later this year, investors, advisors and legislators should consider the issues surrounding this fund and determine whether legislative and procedural changes are needed.

The fund is the result of fines levied against Scotia Capital ($29 million), Credential Securities ($200,000), and Canaccord Financial ($3.1 million) for their roles in the August 2007 collapse of the Canadian non-bank asset-backed commercial paper (ABCP) market.

The grounds upon which fines are levied are open to question, but the main issue is IIROC’s conflicting roles of judge, jury, prosecutor, investigator and, critically, determiner of the disposition of the proceeds of fines.

Legitimacy of the fines

IIROC has claimed it investigated “more than 100 investor complaints.” Oddly, not a single one is specified in any of the three settlement agreements, nor is any kind of connection drawn between the substance of these complaints and the agreements.

The media has reported some of the affected investors were told their investments were “just as safe as GICs.” This is a clear misrepresentation worthy of penalization by the regulators, but not a single advisor has been penalized by the regulators for such an assertion.

However, IIROC did produce an extraordinarily verbose report on the ABCP market and its collapse. The report emphasizes suitability as the standard for selling investment products to retail clients, but doesn’t consider the question of concentration. In fact, the words “concentration” and “diversification” are each found only once in IIROC’s regulatory study, and in both cases with reference to ABCP itself, not the portfolios of the investors.

The importance of portfolio diversification is well known to investment practitioners and academics, but IIROC has an explicit goal of revising its compliance modules to focus on suitability issues.

It seems clear “suitability” needs to be replaced with some version of the Prudent Investor Rule. While ABCP and many other things may be suitable for a retail investor’s account, a heavy concentration of anything is imprudent.

IIROC proudly states it may add “the account’s current investment portfolio composition, duration and risk level” as a suitability factor to the Client Relationship Model (CRM) proposals, but it remains to be seen how this requirement will be monitored and enforced if enacted.

Whatever the faults of ABCP, its credit quality was well within normal bounds. The three “Master Asset Vehicles” set up to receive the majority of the assets of the ABCP conduits have current credit ratings varying from BBB(low)(sf) to A(high)(sf).

The collapse of the Canadian non-bank ABCP market was not so much a failure of credit quality as it was a failure of market liquidity. The Bank of Canada has since taken steps to improve the liquidity of the market in future crises as part of its market development efforts.

The IIROC report stresses dealer members are required to understand the underlying asset composition of instruments sold to clients. But no one has taken action against those who failed to investigate related financial instruments sold or recommended to clients, such as the National Bank Money Market Fund, which held 49.42% ABCP on March 31, 2007.

These peculiarities pale in comparison to the fine IIROC levied on Scotia Capital. The ruling cites that one part of the firm did not talk to another, contrary to what is now Dealer Member Rule 29.1(ii).

This rule is a ridiculous catch-all provision that states “Dealer Members […] shall not engage in any business conduct or practice unbecoming or detrimental to the public interest.”

A fine of this magnitude for such an offence, which did not involve anybody outside the company, should be considered an affront to the most rudimentary notion of justice.

IIROC claims there are other, clearer contraventions, but evidence to support their position cannot be found in the settlement agreement, where one would expect to see references to specific Dealer Member Rules.

The claim that Scotia Capital “continued to sell Coventree ABCP without engaging […] other appropriate processes for the assessment of such emerging issues” is unclear and fails to serve the public interest.

To make matters worse, the settlement agreement specifically notes Scotia Capital is “increasing the number of compliance positions supporting the Respondent’s wholesale business,” and requires a consultant report to IIROC regarding Scotia’s fulfillment of this action.

In short, I question whether IIROC has served the public interest in this matter. Nevertheless, the fines, which with interest total over $32 million, are now sitting in IIROC’s coffers, awaiting disposition as determined by IIROC’s directors.

Problems with “proceeds of crime” laws

The ability of IIROC’s board to determine the disposition of revenue derived from fines is directly analogous to current Proceeds of Crime legislation, under which assets can be seized by the state in a civil action and the proceeds disbursed for purposes of victim compensation, cost recovery and grants.

According to the Ministry of the Attorney General, “Organizations eligible for grants are designated by the act, including law enforcement agencies and Ontario government ministries, boards and commissions. These institutions must meet the established criteria and submit a project proposal outlining how the grant will assist victims of unlawful activities or prevent victimization.”

As of August 2007, only a quarter of the funds seized under this legislation had gone to victims. But there are further problems beyond the disposition, which are best exemplified by the continuing debate regarding asset forfeiture in the United States. One guide for law enforcement officials states the primary argument for supporting “the need for forfeiture” as follows: “For many years, law enforcement agencies around the nation have faced shrinking budgets. […] asset forfeiture can assist in the budgeting realm.”

David Harris of the University of Pittsburgh points out, “Police have an incentive to gear law enforcement toward crimes that will result in forfeitures […] The prospect of a big payoff has a corrupting influence on police priorities […] to the detriment of targeting less lucrative but more damaging street-level crimes.”

It is, of course, impossible to say for certain whether IIROC’s enforcement process has been influenced by the prospect of levying large cash fines against corporations.

But it’s puzzling that after having received “more than 100 investor complaints” they:


Did not name a single complainant
Did not detail a single complaint
Did not name an individual whose conduct could be criticized
Did not revoke a single licence
Did not identify specific conduct by Scotia Capital that harmed the public
Reached an extremely vague settlement agreement behind closed doors.
The prospects of receiving a large cheque — rather than revoking a licence or two — may influence IIROC’s conduct in the course of pursuing settlements. But what does IIROC do with the fines it collects?

How IIROC disposes of fines

IIROC’s 2010 annual report lists two external initiatives funded by its “Externally Restricted Fund”: $282,000 to the Canadian Foundation for the Advancement of Investor Rights (FAIR), with a remaining commitment of $1.6 million; and $201,000 to the “Funny Money project,” with a remaining commitment of $357,000.

After these expenditures, along with $1.8 million in hearing panel-related costs and $224,000 on a Rule Book revision (paid to or disbursed by IIROC staff), the balance in this fund was $27.4 million.

The Funny Money project seeks to address financial literacy issues among high-school students, focusing on “the day-to-day realities of paying the rent, properly using a credit card, budgeting for the basic necessities or investing for their futures.” The program’s other sponsor is the Investor Education Fund (IEF), which is funded by settlements and fines from OSC enforcement proceedings.

The IEF states, “To be considered, these initiatives must contribute measurably to the development of consumers’ financial and investment know-how. The expected results from each project must be clear and measurable.”

When questioned, the IEF provided me with some impressive figures regarding improvements in self-assessed student financial literacy as a result of Funny Money presentations. For example, after the presentation, almost 80% understood the concept of compound growth, compared to just over 30% before.

It is with respect to FAIR that an investigation of IIROC’s granting practices are most interesting. The founder and current executive director of FAIR is Ermanno Pascutto, who requested funding from one of IIROC’s predecessor organizations, Market Regulation Services, at a time when he served on its board as an independent director. The Investment Dealers Association (IDA) was also solicited for funds. Pascutto was able to secure a commitment for three years of funding to a maximum of $3.75 million.

Issues of groupthink

The sidebar on page 25, “FAIR/OSC connections,” shows many prior career parallels among FAIR’s principal actors. It is not particularly difficult to find similar career overlaps and parallels between these players and the boards of the two granting agencies, which merged to become IIROC in 2008.

FAIR’s heavy concentration of ex-regulators could be justified if FAIR was taking meaningful action to gain credibility as a voice for the investors whose interests it claims to advance.

To its credit, FAIR has added the founder of the Small Investor Protection Association (SIPA) to its board. But FAIR has no social media presence, no membership and no formal mechanism through which it seeks to obtain the views of actual investors prior to pronouncing its position.

Why have regulators allocated $3.75 million to form an organization controlled by ex-regulators? This is a recipe for groupthink. Such a problem is further exacerbated by the fact that IIROC judges FAIR’s success by its impact on the regulatory process, the measurement of which includes the regulatory response to FAIR input and FAIR’s inclusion in regulatory initiatives.

It is hard to imagine a more circular feedback mechanism than one where IIROC can burnish the perceived success of its funding of FAIR by including FAIR in IIROC deliberations.

The UK’s Warwick Commission has warned against over-reliance on like-minded individuals, however expert and apolitical, and emphasized regulatory capture can be as much a matter of intellect as self-interest.

The IMF blames groupthink for its shoddy performance in the prelude to the financial crisis. If IIROC wishes to improve regulation in Canada, it should fund an organization more likely to criticize it than to seek inclusion in its processes.

Instead, IIROC’s support of an extraordinarily well-funded advocacy group may be viewed as an attempt to capture the public debate. Smaller groups, operating on miniscule budgets, will be forced to co-operate with FAIR to avoid having their voices completely drowned out.

If IIROC determines that an external advocacy group should be funded, the primary measure of success should be the achievement of credibility amongst actual retail investors. SIPA, for example, has over 500 members who spend $20 per year on a membership. It is SIPA that should be hiring former regulators for procedural expertise, not the other way around.

Pascutto proposed the concept of FAIR. There was no announcement that the boards of the IDA and RS were considering the concept of FAIR Canada, no competition between different groups for the funding and no consultation with the investing public to determine who was considered best suited to receive this generous grant. The funding may be viewed as a single-source, untendered contract.

What should be done?

A settlement process that does not identify any specific wrongdoing or wrongdoers does not serve the public interest. If a company has done something wrong, it should be penalized, as should the individuals who made and executed the faulty decision. If it has done nothing wrong, it should not be pressured to settle based on fear of adverse publicity and a costly investigation.

Settlement agreements should be banned completely. The public interest is best served by an adversarial process addressing the issues in an open hearing. The investing public will then have a basis for deciding whether the punishment fits the crime, and indeed whether a crime has actually been committed.

Doug Harris of IIROC has advised me that “[it] was IIROC’s enforcement position that ABCP was not suitable for retail investors,” irrespective of its proportion in the portfolio.

Yet this viewpoint was not reflected in the settlement agreements. IIROC had a clear responsibility to assert its view in a public, adversarial hearing — a responsibility that was ignored.

IIROC should not be able to award grants derived from fines, as this gives rise to a clear conflict of interest. If extra-organizational funding is worthwhile, it should be part of the normal budgetary process; if it isn’t worthwhile, it should not be funded.

All revenue derived from fines should be directed to the general revenues of the provinces, with shares determined as part of the recognition orders of the various securities commissions. This would introduce some badly needed accountability to these expenditures.

These changes will take time. In the interim, IIROC should show good faith by directing grants only to those institutions large enough and sufficiently disassociated from the regulatory process to be recognized as fully independent.

A good start would be the endowment of academic chairs at Canadian universities, intended to foster research into the capital markets – particularly those of importance to Canada – and the regulation of these markets.

http://www.advisor.ca/news/industry-new ... nd-2-53684
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Mon Oct 03, 2016 1:06 pm

Submission from an informed investor, a victim of financial abuse by financial professionals and trusted institutions:

Worth reading to learn about what IIROC is about in 2016:


Cleaner copy linked here: https://www.osc.gov.on.ca/documents/en/ ... housep.pdf

Via email
Comment Letter from Peter Whitehouse
Robert Day
Senior Specialist, Business Planning and Performance Reporting Ontario Securities Commission
20 Queen Street West
Suite 1900, Box 55
Toronto, Ontario M5H 3S8
(416) 593-8179
rday@osc.gov.on.ca
ONTARIO SECURITIES COMMISSION NOTICE 11-771 – STATEMENT OF PRIORITIES REQUEST FOR COMMENTS REGARDING THE STATEMENT OF PRIORITIES FOR FINANCIAL YEAR TO END MARCH 31, 2016
http://www.osc.gov.on.ca/en/SecuritiesL ... d-2016.htm
I am an 81-year old retired senior with some bad experiences with a Canadian Investment Dealer and its Investment Advisor employees and the subsequent complaint resolution process. This includes a lack of commitment on the part of the Investment Industry Regulatory Organization of Canada (IIROC) to enforce any of the present statutory Regulatory Rules, Regulations and Guidelines that are said to be in place to protect against such investor abuse.
I am pleased to provide comments on the proposed OSC priorities for the fiscal year 2015-2016 based on my experiences. My comments can only deal with recommendations based on my personal exasperation when finding out that there is a great void between the vulnerability of placing ones trust with an Investment Dealer which turns into an adversarial engagement after filing a complaint. My recommendations only deal with a narrow area of financial governance, that does not appear to be getting Regulatory implementation and enforcement. The effects of maintaining the status quo can only perpetuate the continued abuse of unwary investors strictly for the disproportionate financial gain of the investment industry and its employees.
From what I see as a layman, the years go by with all the talk, studies, reviews and reports and the banner headings on the websites of the FCAC, the CSA, the OSC, IROC and the OBSI proclaiming protection for investors, but the lack the preemptive deterrent for the protection for investors continues.
Recommendation #1 - An "Investing Instruction Manual" must be provided by the Investment Dealer to every investor at prior to, or at the time an investor opens an account with an Investment Dealer. The new CRM II requirements and the Fund Facts may be considered as ways to induce some conscience and moral responsibility in the dealing relationship by the Investment Dealer and its employees with the investors. However, what is required is a standardized manual set of investing instructions that is co-authored by the Regulators, the Investor Advisor Panel, The Office of the Investor as well as investors. It should not be diluted with the Investment Industry participation aimed at trying to keep the investor in the dark and from asking too many self-protection questions.
May 25th, 2015
Continued / 2
Page/2
#1Continued. . . . .
This Investing Instruction Manual would be written in point form just as any standard "User Operating Manual". In this way the first time user (the investor) would be provided with an education of the factors that should be considered and that would influence the success or failure of the investments and the ongoing relationship with their Investment Advisor. This is as opposed to the present situation whereby the investor lack of investment knowledge gets a posthumous education only after they later discover how the Investment "Advisor" has negatively influenced their investment results.
The present Regulatory requirement is that the Investment Dealer must, by law, provide every investor with instructions for the process of filing a complaint with the Dealer in the case of a dispute. Then, if the complaint is not resolved, there are instructions for the investor to register the complaint with the Self Regulated Organizations (SROs) of OBSI and IIROC.
It is then follows that it is ridiculous that there is a Regulatory obligation for the Investment Dealer to provide the investor with instructions on how to file a complaint after there is a dispute with the Dealer and the damage is done, yet there is no Regulatory specified obligation for the dealer to provide an "Investing Instruction Manual", including advice on all the vital points to consider before investing. With this preventative information, at least the investor would be better informed on how to protect their investment capital. The idea that there is investor educational information already out there for the potential new investor to get an education and all the investor has to do is go looking for it, is a philosophical cop out.
It is a fact that most investors engage the services of an Investment "Advisor" because they do not have all the knowledge necessary to make suitable investment decisions for a long term investment planning. As there is a drive for greater financial literacy, a standardized "Investment Instruction Manual" provided to every new investor by the Dealer would be a solid way to broaden the effectiveness of the drive for greater investor self-protection. Without the educational benefit of an "Investment Instruction Manual", the vulnerability of the trusting investor is already increased with the prospect of an Investment "Advisor" recommending and making inappropriate investments on behalf of the investor.
Recommendation #2 - Focus on Seniors Issues With the gradual demise of Defined benefit Plans, seniors are more dependent than ever on their own investments for retirement. Investment dealers are developing and offering a variety of complex new products and services that are intended to generate higher yields in a low interest rate environment. It is imperative that firms are recommending suitable investments and providing proper disclosures regarding the related terms and risks. With the dramatic increase in the population of our nation’s seniors, it is critical that securities regulators work collaboratively to make sure that senior investors are treated fairly. The culture of compliance at firms is key to ensuring that seniors receive suitable recommendations and proper disclosures of the risks, benefits and costs of any investments they are purchasing and have a fair dispute resolution mechanism. Clear standards and robust enforcement are critical investor protections that should be top of mind for 2015-2016.
Continued / 3
#2Continued. . . . . .
I urge the OSC to gather data from dealers regarding the products they market to seniors, the percentage of revenue they derive from those sales, how advisors are assigned to elderly investors and the designations/titles firms are using to market themselves to older Canadians. Once the data is distilled, appropriate measures need to be introduced.
Given that thousands of Canadians each month are retiring/entering into RRIF's, time is of the essence. This is a major socio-economic issue as well as an important regulatory
OSC establish a standing ,well funded multi-stakeholder
Page/3
issue. I also recommend that the
Investor Advisory Panel's incisive Report on Seniors.
and follow up on the
Seniors Advisory Committee to keep on top of the developing situation
Recommendation #3 - Implement a Fiduciary standard for all advisors: Much independent research has already been done in Canada and elsewhere that demonstrates that conflicted advice acts against investors. Multiple consultations have been conducted. It has been over a decade since the Fair Dealing Model was first proposed The adverse impact of NOT imposing a fiduciary duty is obvious. The status quo is, in my view, a prescription for a socio-economic crisis.
Canadian retail consumers need increased protection when dealing with the financial planning
industry, according to a report released March 26, 2013 by the Public Interest Advocacy Centre
(PIAC) entitled, Purse Strings Attached: Towards a Financial Planning Regulatory
Framework. The report reveals that the pace of reform has been slow for an industry entrusted
with the retirement security of Canadian consumers. “It’s time all employees of the financial
planning industry in Canada face the reality-they need to employ a uniform standard of care for
investors, complete with a full disclosure of how they’re being compensated,” noted Jonathan
Bishop, co-author of the report.
The research reveals Canadian consumers are potentially leaving thousands of their
retirement dollars in someone else’s hands by not being fully informed .The report
concluded that the time remains ripe for provincial consumer and finance ministries to
work towards a regulatory framework for financial advisors . Report at
I note parenthetically that the
Wynne Government has established a Panel to examine the regulation of financial planners.
ttp://www.piac.ca/files/pursestrings_at ... or_oca.pdf
In Should Canada's financial advisors be held to a higher standard? :Research paper
( Jan. 2015) http://dtpr.lib.athabascau.ca/action/do ... en/punkon- aprj-final.pdf the authors conclude “ The implementation of a fiduciary standard would have widespread implications for the financial industry, as advisors would be required to ensure that all recommendations were in the best interest of their clients, including the minimization of all fees and expenses, which is typically at odds with the advisor’s goal of maximizing revenue from a client account. “ . I agree with this for it is only a disruptive change that will elevate advice giving to the professional status it deserves and that clients need. Patching the system with more disclosure and enhanced investor financial literacy is not a effective plan
Continued / 4
Page/4 Recommendation #4 - Make OBSI a real Ombudsman Restitution is the top priority for
investors who suffer losses because of violations of the securities Acts. OBSI needs teeth as the current system is clearly not functioning. It should be noted that OBSI has encountered a record number of Name and Shame cases and in its latest Annual report cited the developing issue of low balling restitution settlements. The impact on victims, especially retirees is life altering.
Recommendation #5 - Rein in Free Lunch seminars Some rules and guidelines need to be put in place for such seminars. Seniors especially are adversely impacted by these well disguised sales pitches.
Recommendation #6 - Fix the NAAF/KYC process I appreciate that the OSC will continue with its focus on suitability sweeps and take enforcement actions as appropriate. This is necessary and appropriate. I believe however that the entire process needs an overhaul. We are hopeful that the OSC’s research into risk profiling will prove useful in improving KYC . One chronic underlying problem for investors and OBSI (and industry participants) – non-standard, misleading and inadequate NAAF forms within the industry. If the NAAF/KYC process were re- engineered and standardized, a large number of complaints could be avoided. I recommend this be a specific 2015-/2016 priority as it will have a big payoff for all stakeholders. This was recommended to the OSC by the Regulatory Burden Task Force in December 2003. http://www.investorvoice.ca/Research/OS ... _Dec03.pdf
Even where there are regulations, IIROCs' own 12-0109 Rules and KYC Guidance Notes are not being enforced by IIROC when they allow an Investment "Advisor" to illegally change the Risk Tolerance Rating on an investors KYC from Low to Medium after the investor refused to sell $63,000. in equity mutual funds purchased on a DSC basis and replace them with Fixed Income investments. What good are Regulations when they are not being enforced by IIROC !
Recommendation #7 - Update dealer complaint handling rules. Closely related to the KYC issue is the question of fairness of dealer complaint handling practices. Unsuitable investment recommendations is one of the top reasons for complaints. Dealer responses too often are unfair, dismissive and abrupt.
To support this point, at the age of 72 and in the RRIF payout phase, what was the Investment "Advisor" doing recommending and placing over 80% of our total of 3-RRIF portfolios in long term risky equity mutual fund investments. In addition, recommending that we purchase these investments on a DSC basis that increased the redemption liability costs if there was a necessity to make an early redemption before we reached the age of 79 ? There is something wrong here, the Dealer Supervision and Compliance Department could see nothing inappropriate. There is another problem here. When the complaint was submitted to IIROC, some way or other they did not seem to consider that these were unsuitable and appropriate investments. If, in the eyes of IIROC these were suitable investments, where does one draw the line on unsuitability ? With this level of IIROC permissiveness, no wonder complainants become frustrated with the IIROC complaint recognition process.
Continued /
#7 Continued. . . . . . . Page/5
I recommend that a compliance sweep of dealer complaint handling practices be part of the 2015-2016 work plan. There are many other regulatory issues facing small investors but
I believe these are among the most important for retail investors.
In a April 20, 2015 column entitled How mutual fund salespeople in Canada who lie, cheat and steal from clients are escaping justice Financial Post financial journalist Claire Brownell describes the results of his investigation into “advisor” wrongdoing. In the period 2013–14, the amount the MFDA claims was stolen by salespeople ranged from $3,500 to $11.6 million. The representative in the latter case, Toronto’s Paul Yoannou, was one of the three who were criminally charged. Yoannou was sentenced to six years in prison last year after pleading guilty.
The Post’s investigation restricted its scope to cases that appeared to constitute crimes, as defined by the Criminal Code, and where it appeared that the representative should have reasonably known the behaviour would harm victims or amount to improper personal gain.
Not included, for instance, were cases where mutual fund salespeople were found to have forged client signatures for the sake of convenience; but the investigation included several cases where the MFDA found representatives falsified information to get around limits on highly leveraged — and handsomely commissioned — investments.. Between 2013 and 2014 there were an additional 12 cases where mutual fund salespeople “misappropriated” client funds, as the MFDA calls it.
A common method the salespeople used was to incorporate a company with a misleading name and get clients to make cheques out to it, thinking the money would be used to purchase securities. Because MFDA decisions are not backed by the same enforcement authority as a court of law, of the $12,372,500 in fines and costs levied against the 20 mutual fund salespeople disciplined in the cases between 2013 and 2014, only $20,000 has so far been repaid. In the column, Shaun Devlin, the MFDA’s head of enforcement, is quoted as saying that the regulator has asked provincial securities commissions for the power to enforce fine payment by non- members — or, more to the point, ex-members — but so far, it has been to no avail. I strongly recommend this as a 2015-2016 priority. If that cannot be done, then regulators should make dealers responsible for unpaid fines of its representatives. This would help bring back trust in the system and in its regulators.
Recommendation #8 - OSC should immediately perform an in-depth examination of the way IIROC uses its discretion to take action on only some investor complaints, while at the same time it can indiscriminately reject, for its own convenience, other legitimate investor complaints. IIROC has openly declared to me that "IIROC uses its discretion in determining the most appropriate cases to pursue in order to ensure the most responsible use of our (IIROC) resources".
I would like to see under its charter how IIROC are permitted to indiscriminately use this said discretionary principle, especially when there is a demonstrated evidence of violations of Regulatory Rules, etc. by a registered Investment "Advisor" employed by an Investment Dealer.
Continued / 6
#8 Continued. . . . . . . Page/6 This raises the question of a possible conflict of interest when the aforementioned IIROC
discretion declaration takes precedence over the interests of a legitimate investor complaint.
Also related to this issue is the hierarchical dissuasion process used by IIROC whereby a Senior Case Assessment Officer authors a November 21st 2011 complaint rejection letter which includes an invitation for the complainant to ask questions. When the complainant asks questions, the response is elevated up the line. The response comes from the Manager, Case Assessment, Enforcement. Questions are then asked of this next person and the response comes from a further higher level Senior Complaints & Inquiries Specialist, Then, on account of the continuing twisted responses from IIROC, questions are raised with this person. The IIROC response is then escalated up one more level in the chain of command to the Director, Case Assessment, Complaints & Inquiries. The response from this person was so unbelievable it prompted further leading questions. That is when the next response dated January 28th 2014 came from the ex-Vice-President, Registration, Complaints & Inquiries. Copies of both the IIROC original November 21st 2011 complaint rejection letter and the January 28th 2014 V-P letters are being sent to you via Canada Post..
The purpose for providing the forgoing information is to show that certain IIROC staff members should not be free to make statements that, when challenged, are not responded to with facts to support their statements. Rather, they hope to silence the complainant by bringing in a higher person of authority. This policy should not be allowed. Either the evidence of violations provided by the complainant should be refuted or contradicted by IIROC or accepted as a fact.
Here is the evidence to support this #8 Recommendation.
Rather than going in to a long explanation for my #8 Recommendation, I am separately sending to you via Canada Post, a copy of the 7-page January 28th 2014 letter I received the fifth person in IIROC, the Vice-President Registration, Complaints & Inquiries. This person departed from IIROC shortly after sending the said letter. Enclosed will also be a copy of the IIROC original November 21st 2011 complaint rejection letter.
This V-P letter claims to be a review of our complaint file but it totally avoids refuting or contradicting any of our written allegations and evidence of where the Dealer and its employees violated Regulations. The said letter also ignores addressing our criticism of the explanations and rationalizations put forward in the ensuing communications by the four lower levels of IIROC staff, when they sought to justify their reasons for not taking action to enforce the Regulations.
In response to this IIROC V-P letter, I am sending you a draft copy of my 26-page letter dated May 5th 2014 which was to be delivered to IIROC, but was never sent after we were informed that the V-P was no longer employed by IIROC. It is important that OSC take an unbiased examination of the facts included in this letter. The facts speak for themselves.
The first page alone lists the CSA, OSC and IIROC Rules, Regulations and Guidelines that were violated by the Investment Dealer employees. There are other references on later pages.
. Continued / 7

#8 Continued. . . . . . .
The fundamental IIROC explanation for not pursuing our complaint against the Investment Advisors and the Investment Dealer was because IIROC said in their original November 23rd 2011 rejection letter that there were no violations of the Regulations. As you will discover, there is no truth to this illusion. The inadequacy of the explanations and rationalizations in the letter speak for themselves.
Going back to the IIROC ex- Vice President letter. The letter illogically defends the four lower levels of IIROC employee explanations for not pursing our complaint. In permitting this discretionary principle to go unchecked, this IIROC act is an outrageous repudiation of their responsibilities, which is supposed to protect the interests of all defenceless investors (not just the most victimized) who have been abused by the acts of greedy Investment Advisors and their Investment Dealer employers.
In light of my experiences, the fact that the V-P is no longer with IIROC does not change my view that the oversight of the competence of the IIROC Management needs to be seriously examined by the OSC.
My 26-page letter to the exited IIROC V-P makes detailed reference to our original complaint about the conduct of the Investment Dealer and its employees. More over, my response letter dissected the twisted explanations of where the 7-page V-P letter tried to extinguish my complaint about the way IIROC had continued to defend their decision not to take enforcement action on our complaint. The nature of the responses received from the five levels of IIROC management, have done nothing but to confirm that my allegations that our complaints have been ambushed.
Reference to the OSC 2015 -- 2016 Regulatory Goals -
Overall, the proposed priorities appear to address most key investor protection issues and particularly the proclamation -
1. Deliver strong investor protection -- The OSC will champion investor protection, especially for retail investors
I would be pleased to discuss my comments and recommendations with you in more detail at your convenience.
I agree to public posting of this Comment Letter. Sincerely,
Peter Whitehouse
Page/7





https://www.osc.gov.on.ca/documents/en/ ... housep.pdf
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Wed Sep 14, 2016 3:17 pm

This letter about investor abuse by financial professionals, and about IIROC etc is particularly good and worth sharing with all. (the system ain't broke at all, it is perfectly "Fixed")

1379789_595811430464795_28015880_n.jpg


Zoomer Magazine Letter to the Editor September 12th 2016

Peter Whitehouse -3359 Chokecherry Crescent, Mississauga, Ontario L5L 1B2
Tel: 905-607-5654
FAX: 905-607-4916 email: PeterWhitehouse@bell.net
September 12th 2016
Ms Suzanne Boyd Editor-in-Chief Zoomer Magazine 30 Jefferson Avenue Toronto Ontario M6K 1Y4

Dear Ms Boyd

Letter to the Editor re: Zoomer Magazine article, “Who’s Got Your Back”

It is appreciated that the objective for the “Who’s Got Your Back” article, in the September 2016 Zoomer magazine issue, is to help foster an increased awareness of the pitfalls facing unwary investors when they are trying to secure their lifetime savings for future comforts.

The article opened up by encapsulating three case examples to show the nature of costly investor experiences and then followed that up with a commentary of the questionable investor protection conditions faced by unwary investors. It would have been great to see an expanded narrative with the more intense details showing just how investor experiences have failed the “trust” expectation test that many, many unsuspecting investors have been subjected to.

There are three expectations of trust that are exposed to abuse when investors sign on to make investments.

Those three expectations of trust are,

1) There is the trust that the Investment/Financial “Advisor” will provide advice that investment recommendations made will be in the investor’s best interest and

2) There is the trust that the Investment Dealer employer of the “Advisor” will protect its integrity by adequately supervising the proper conduct of the “Advisor” employee.

3) Then, there is the third and most important expectation of trust. And that is the trust that the SROs, namely the Investment Industry Regulatory Organization of Canada (IIROC), and the Mutual Fund Dealers Association (MFDA), whose job it is to oversee the conduct of the financial investment services industry, will recognize and acknowledge and take appropriate enforcement action when they are presented with a legitimate complaint of Investment/Financial “Advisor” regulatory wrong-doing. Also, the Ombudsman for Banking Services and Investments (OBSI) are trusted as being a part of the restitution enforcement process against Investment Dealer “Advisor” regulatory wrong-doing.

Without exaggeration, the records show there have been thousands of investors who have complained to the above mentioned three trust levels about unresolved unsatisfactory investing experiences. Not surprisingly, there is
one common observation that flows from those unsatisfactory experiences and that is the lack of respect by these three levels for the investor’s financial best interests that have violated the investor’s trust
.
Firstly, the investors place trust in the Investment Dealer “Advisor” employee to put forward the most suitable and appropriate investments and to act in the investor’s best interests. However, this investor expectation does not materialize when an “Advisor” violates that trust with actions that subordinates the best interests of the investor to those financial self-interests of the “Advisor”.

Secondly, when the investors have complained to the Investment Dealer employer of the Investment/Financial “Advisor”, the aggrieved investors have trusted the Dealer to respond and deal with a complaint also in the investor’s best interests, but that also does not happen. The fact is,
there are few if any disincentives that would encourage Investment Dealers to be forthright and concede to any wrong–doings of their “Advisor” employees, short of hard to deny obvious outright fraud.
That’s why there have been 12,355 investor complaints alone registered with IIROC over the last 7-year period. Who knows how many more thousands of investor complaints should have seen the light of day except for the vulnerable victims not having the fortitude, inclination and/or resources to press the details of their complaint with IIROC, the MFDA and the OBSI.

Thirdly, when all else fails, the
aggrieved investors expect and then trust the SRO regulatory overseers to objectively and proportionately enforce the securities regulations to protect the investors who have legitimate complaints. However, in far too many cases that has not happened.
The IIROC statistics enumerated below show Complaints Received versus the Case Assessment Files Open versus Complaints Investigated and Completed will substantiate this statement to be all too true. MFDA complaint statistics are not considered.

Here is a Summary of IIROC Enforcement Reports Statistics

The below statistics were extracted from IIROC published documents Source of Complaints Received by IIROC


Screen Shot 2016-09-21 at 10.43.14 AM.png


Screen Shot 2016-09-21 at 10.43.37 AM.png


NB. According to IIROC, the designation for the “Number of Investigations Conducted” and the “Number of Investigations Completed” have identical meaning. Therefore, regardless of the vernacular, what is important is that, for example,
there were only 124 “Investigations Completed” in 2015 even though IIROC received a total 1,341 investor complaints
. This means that, according to IIROC, only 9.25% of the complaints warranted investigation.
The larger issue here is what happened to the other 1217 (90.75%) complaints?
The public have a right to know how IIROC classified each of these 1217 investor complaints that were not investigated. Furthermore, in order to protect the unsuspecting vulnerable investing public,
they have a right to know who are the less reputable Investment Dealers who generated these 1,341 investor complaints. This is what the IIROC President defines as “transparency” !


In answering the ZOOMER Magazine article question, ”Who’s Got Your Back”, don’t look for IIROC to be a qualifier based on an analysis of the above statistics. Let’s also deal with the IIROC Complaint and Settlement Reporting (ComSet) comparison statistics which directly involves complaints to Investment Dealers.
The ComSet regulation requires Investment Dealers report all investor complaints they receive. This is vitally important because the world needs to know that there have been 9,363 ComSet investor complaints over a 7-year period against Investment Dealers. This averaging of 1,337 complaints per year indicates that over the past 7-years
IIROC have not put in place sufficient preemptive deterrents that would support the IIROC mantra that reads, “Protecting Investors and Fostering Fair and Efficient Markets across Canada”


During this 7-year time period, IIROC only saw fit to “open up” a total of 2,491 files (averaging 355 per year) of the 9,363 ComSet registered complaints.
That means that only 26% of the complaints registered from Investment Dealers received IIROC’s scrutiny.
What happened to the other 74% (6,902) of the ComSet complaint files that IIROC divulged were not “opened up” ? Just what did IIROC do with these complaints ?

Here is why we need IIROC’s answers as to where these investor complaints originate

It is interesting to note that when IIROC were asked how many of the Investment Dealer ComSet complaint reports came from the five largest Canadian banks and the IGM group, the
IIROC response was that they do not publish this "granular" information.
In other words
IIROC hides this most important defensive investor protection information which then perpetuates the exposure of unwary investors to the less reputable Investment Dealers
and their less reputable “Advisor” employees, regardless of whether they be bank-owned or independent Investment Dealers.

What level of public outcry will it take before IIROC realizes that they need to investigate and report the detrimental effects facing retail investors relative to complaints against the Bank-owned Investment Dealer concentration.

From recent 2014 information attributed to the Investment Funds Institute of Canada (IFIC), the big six Canadian banks and another major investment conglomerate now collectively control over 65% of the personal mutual fund assets of Canadians. This is an astonishing dominance considering that as of last February, Canadians have over 3-trillion dollars(1) in personal wealth of which over 1.2 trillion dollars are invested in mutual funds.

These six Canadian banks alone have been credited with increasing their share of mutual fund sales to Canadians from 25% in 2003 to 57% in 2013(2). This increasing domination has been made possible through the banks facility to steer its customers through the bank-owned investment services, as well as the banks buying up the independent Investment Dealers in order to continue to reduce non-bank competition.

Related to reduced competition - the Globe & Mail(3) reported that the Investment Industry Association of Canada (IIAC) stated that over the past 3 1/2 years, there has been a demise of more than 50 independent Investment Dealers and Brokers. Some have been swallowed up by larger competitors, such as the six Canadian banks, while others just gone out of business. (Refer to the Appendix for details of how the bank anti-competitive methods of operation have helped them accrue such a market dominance)

Even more stunning is the Globe and Mail article showing the six banks share of Canadian wealth management assets when compared with a couple of major independent Investment Dealers. In this comparison, by the year 2013, the six banks had accumulated relative control over 73% of Canadians investment wealth.
Here are Mutual Fund Assets under the Management of the banks, etc., for YE 2014
Page / 3
Royal Bank Assets Management - TD Asset Management - Scotia Global Asset Management - CIBC Asset Management - BMO Financial Group - National Bank Securities -
Investors Group
Mackenzie Financial Corporation -
Counsel Portfolio Services - 3.850 Billion
Total - $ 628.676 Billion
-
73.458 Billion 47.118 Billion
$124.456 Billion controlled by IGM Financial Inc which in turn
is controlled by the financial conglomerate Power Financial Corp
$ 166.165 Billion 94.872 Billion 86.392 Billion 78.049 Billion
59.410 Billion 19.632 Billion

By the time the $124.456 billion mutual fund assets invested through the IGM Financial Inc. group are added, the mutual fund assets of Canadian investors under management by this group of banks and non-bank operations, is closer to 80%. This does not include other forms of retirement plan products for Canadians that are under the control of an assurance group controlled the financial conglomerate, Power Financial Corp.
(1)Financial Post April 13th 2013 quoting MFDA (2) Globe & Mail July 26th 2013 (3) Globe & Mail Dec 1st 2015

The IIROC explanation for their refusal to divulge this critical information reporting on the number of ComSet complaints coming from each registered Investment Dealer is in order to protect the Dealers against frivolous complaints. IIROC said, their concerns regarding disclosure before the commencement of discipline proceedings relate, in part, to questions of fairness to firms and individuals being named in frivolous complaints, but also to possible confusion for investors who may not fully appreciate that allegations against a particular firm or individual have not been proven. This IIROC policy subordinates the investor’s best interests to the Dealer self-interests.

The question raised is, how does IIROC separate what they say are "frivolous complaints" against Dealer resolved complaints, as well as against those legitimate substantiated complaints that have not been resolved by the Investment Dealer ? After all, what's the point in having Investment Dealers report the number of complaints if most are only used as a bare statistic to glamorize the IIROC Enforcement Report with no COMPLETE consequential purpose ?

It would seem reasonable and part of the IIROC review process that their job is to classify the legitimate complaints versus what they classify as frivolous complaints and then publish names of the offending Dealers responsible for the cause of the legitimate complaints. This is not happening.

Can the IIROC top management not see and
understand the hypocrisy of IIROC publishing statistics in the IIROC Annual "Enforcement Report", with the title "Protecting Investors and Fostering, Efficient and Competitive Capital Markets across Canada", when investors are denied the names of the less reputable Investment Dealers whose ComSet reports are the source of 9,363 complaints over the 7-year period.


This IIROC policy is nothing short of protecting the powerful investment dealer questionable reputations against the powerless unsuspecting small investors. And the damage continues.

Another way of looking at it, compare these figures with average number of investigations that were completed over the past 5-years to show the ineffectiveness of IIROC claim of protecting investors. Over the past 5-years, out of 7960 complaints received, IIROC say they have opened up 2,924 case assessment files and they have completed 967 investigations. What happened to the other 5,036 (64%) investor complaints that did not get as far as assessment files, let alone being investigated.? There needs some IIROC answers here !

Considering the pathos of all this information,
one has to wonder how much impartiality is present when the SROs, IIROC and MFDA are being financed by the very Investment Dealers whom the SROs are regulating.


Until the potential for bias against investor interests is removed from this equation, there can be no perception of impartiality. The perception of impartiality cannot be claimed just on the merits of a few IIROC prosecutions for serious breaches of the law such as fraud, etc.

The IIROC statistics illustrate that the problem with the present investor regulatory protection process being focused on the threat of post-mortem penalties, only after the damage is done, is not in the investor’s best interests. The problem is there is not sufficient IIROC emphasis on preemptive deterrents to remind all Investment Dealers that their names will be exposed relative to the number of legitimate complaints that are brought forward by investors.

The enumerated IIROC complaint statistics shows that,
if a potential investor has been fortunate enough to have accumulated a financial nest egg from years of labour and believes that all Financial “Advisors”, the Investment Dealers and the SROs overseeing the investing process can be trusted as guardians of the investor’s best interests, the investors are sadly mistaken.


There are too many incentives for disproportionate amounts of the investor’s money to be inappropriately transferred to the “Advisor” and Investment Dealer pockets relative to the services provided.


There are no compelling preemptive disincentives for Investment Dealer wrongful conduct, other than penalties after the damage has been done to the investor’s best interests. These are called post mortem penalties.

The IIROC March 31st 2016 Press Release puts a spin on the enforcement situation that is enough to cause serious indigestion. Here is the link to the press release –

http://www.iiroc.ca/Documents/2016/40e3 ... eb3_en.pdf
This IIROC Press Release title reads, "Report highlights IIROC's focus on strengthening enforcement tools and deterring wrongdoers"
The choice operative words "deterring wrongdoers" in this IIROC declaration are hardly supported when you consider the continuing number of 9,363 investor ComSet complaints registered over the past 7-years as shown in the previous table of investor complaints. Added to this figure are the 3,000 investor complaints from other sources. Publishing the names of Investment Dealers who employ the Investment "Advisors" attracting investor complaints would certainly contribute to reducing these above complaint statistics. The more concerned Investment Dealers would then be quick to discipline any wrongful conduct of their Investment "Advisor" employees, instead of condoning it.
What is more important, protecting the wellbeing of future investors or Investment Dealers with bad reputations ?


In the Zoomer magazine article, Mr Wade Poziomka, CARP’s Director of Policy and Litigation, only lightly touched on the publically available IIROC statistics. The IIROC statistics that I have presented, along with the commentary shows a greater dimension of the staggering complaint abuse that investors are being subjected to.

The details of the IIROC Complaint Statistics reporting that I have brought to your attention indicate a very serious situation concerning IIROC's first and foremost responsibility, which is to protect the powerless investor before they invest. This is every bit as important as IIROC employing many legal and paralegal staff engaged in post mortem investigations after the damage has been done to the finances of unsuspecting investors by some self-serving Investment "Advisors" and Investment Dealer employers.

As it is now, there are conflicts of interest and incentives for investment Dealers to condone the self-interests of their Investment "Advisor" employees because the Dealer can also financially profit from overlooking those "Advisor" self-interests conduct.
There is something terribly wrong with the way IIROC is reporting investor complaint facts. Don't think for one moment that Investment Dealers are unaware of these statistics I have enumerated. The IIROC batting average that I have detailed certainly encourages the Dealers to push the limits of ignoring the Regulatory Laws, Rules and Guidelines that are supposed to protect investors.

It is the
unbridled practices of some “Advisor” individuals and Investment Dealer companies who perpetrate a variety of Regulatory violations that are allowed to unfairly bleed unwary investors of hundreds of millions of dollars from their life's savings.
The extent of this deleterious condition will continue as long as IIROC declines to put forth sufficient disincentive speed-spike strips to get the attention of the offending parties, especially as these are the same parties who are financing the very existence of IIROC.

As a side note, if IIROC were truly protecting investors, discount brokers would not be allowed to transact orders for A class mutual funds since they are not permitted to provide advice, the cost of which is embedded in the fund fee. And IIROC dealers wouldn't be allowed to reject OBSI compensation recommendations with impunity. In addition, IIROC has allowed deceiving advisor titles to proliferate to the point that investors are utterly confused as to who they are dealing with. As for deterrents, only a tiny fraction of the fines imposed on advisors are ever collected – therefore, the IIROC announcement of fines imposed is just an IIROC PR exercise.

I will be happy to supply any other information you may need to support action on the issues I have brought forward in this missive.
Respectfully
Peter Whitehouse
PS. Let me know if you would like a Windows WORD version so that you can extract quotations for you to use.

Appendix
How did the bank-owned captive retail Investment Dealer channels achieve such market dominance ?

On the surface of it, the six big Banks and one other major non-bank financial organization appear to compete with their Investment Dealer subsidiaries for the retail investor business. However, the Bank customers regular day-to-day banking relations at their Bank, effectively becomes a means of corralling and steering customer needs for investing savings into the Bank-owned retail investment channels. The real issue here is the innocent looking freedom that is enjoyed by the banks for them to steer their customer needs to save and invest through the banks own captive conduits. This includes the Banks own in-branch investment services as well as the facility to also feed Bank customers to the Bank-owned retail Investment Dealer subsidiaries.

Thirty years ago, the Canadian banks came to the realization that they were missing out on additional profits from their customers' need for long term savings investments services. To capitalize on this opportunity, the banks had a choice of investing and building their own retail Investment Dealer operating structures for these investment services or, to save time and effort and the reduced risk, buying up all the largest Canadian retail Investment Dealers.

It would not have escaped the banks' reasoning that, if they had invested to build their own retail Investment Dealer structures, they would still have been faced with the competition from all the other well established non-bank Investment Dealers. These investment Dealers would also be competitively selling investments such as mutual funds. It therefore follows that
by buying up all the major Investment Dealers, the banks also
removed what could be future major competition.
All it took was for one Bank to buy up a major Investment Dealer and the rest of the Banks followed.

Now, we the
consumer-investors are paying the price for this market dominance by the concentration of the Canadian banking system and one non-bank conglomerate financial operation, who collectively control well over 65% of the Canadians personal wealth.


With so much concentration of financial power from the mutual funds savings of Canadian investors controlled by so few companies, is there any wonder where the power to influence and resist Government policy and Regulatory change initiatives can originate.
The Federal Government has allowed the banks to continue to purchase and merge all of the significant Canadian investment dealers into their operations. All the largest investment dealers who were independent 30-years ago are now owned by the Canadian Chartered Banks.
What were the conditions in the merger approvals by the Federal Government to ensure that true competition was maintained in order to protect consumer best interests ?
It is now up to the Competition Bureau to intervene and dissolve the unjust anti-competitive power of this bank-owned retail Investment Dealer concentration.


Here is a list of the most significant Canadian Bank and Investment Dealer mergers -
1. BMO & Nesbitt Thompson, 2. TD Bank & Canada Trust, 3. Royal Bank & Dominion Securities, 4. Scotiabank & McLeod Young Weir plus Dundee Securities, etc., 5. CIBC & Wood Gundy,
6. National Bank & Levesque Beaubien Geffrion.
In addition, the Power Corporation (PC), who controls IGM Financial Inc., has also acquired other retail Investment Dealers. The PC group is a major player in the Canadian mutual fund sales business with over $124 billion under their asset management.
IGM must be doing OK as they are a publically traded company currently paying about a 5% dividend after paying sales commissions and all their operating expenses. Investors would do better by investing their RRSPs in IGM Financial Inc shares than in many of the mutual funds that IGM Financial are selling. But then, that would not work, because IGM Financial would not have the profits from the sale of mutual funds in order to pay dividends!
If there was more true competition, the bank-owned investment channels would have likely been more pro-active by showing an initiative to protect the investor-client interests, in order to earn their continued loyalty.

Zoomer Magazine article which prompted this letter to the Magazine: http://www.everythingzoomer.com/small-investors-pushing-greater-protection/2/
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Re: IDA spends it's credibility, changes its name to IIROC

Postby admin » Mon Mar 14, 2016 4:22 am

After years and years of runnaround, by IIROC and other industry "regulators", "self"-regulators etc....here is one of perhaps a hundred such letters written by an 81 year old victim of fraud and abuse (used a TD "Advisor" who had no "advisor" license)

This man has spent that last several years of his life, going in fruitless circles inside the spin machine that is called Canadian financial services regulation. It usually takes at least 5 years for one to come to the realization that these entities are there to protect the industry FROM the public, and not the other way around, as they claim:



Image.jpg


From: PeterW
Sent: Tuesday, March 08, 2016 10:42 AM
To: 'InvestorInquiries'
Cc: 'akriegler@iiroc.ca'
Subject: Attention Mr Garry Hickey re IIROC Complaint Statistics Requested



Dear Mr Hickey

First, I thank you for your prompt response to my email. Although, your response is somewhat confusing.

You say that IIROC does not regulate the "entities" that I mentioned. You say that IIROC only reports on "investment dealers" registered by IIROC. There must be a mistake in your response.

Please re-read my email. I specifically mentioned and underscored " bank-owned Investment Dealers and IGM Financial".

You were good enough to provide a link to the investment dealers regulated by IIROC and low and behold, there in the list are the investment dealers who are owned by the banks that I named. It therefore means that your directing me to the CSA and the OSC and the MFDA was a misdirection.

I will now add the names of the Investment Dealers owned by the banks that I mentioned using the reference list that you provided -

- Royal Bank Assets Management - RBC Direct Investors Inc. - RBC Dominion Securities Inc.

- TD Asset Management - TD Securities Inc. - TD Waterhouse Inc. (Now TD Wealth)

- Scotia Global Asset Management - Scotia Capital Inc.

- CIBC Asset Management - CIBC Investor Services Inc. CIBC World Markets Inc

- BMO Financial Group - BMO InvestorLine Inc. - BMO Nesbitt Burns Inc.

- National Bank Securities - National Bank Financial Limited

- IGM Financial Inc (which includes related companies of Investors Group and Mackenzie Financial Corporation and Counsel Portfolio Services) - Investors Group Securities Corporation and IPC Securities Corporation.

The figures I quoted were from the IIROC Enforcement Reports. I referenced statistics between 2009 and 2014 and they were - 9,461 ComSet registered complaints from Investment Dealers and 2,325 Case Assessment files were opened by IIROC.

Your response referred to IIROC not providing the type of "granular information" I was seeking. That's a new one for the glossary. The 9,461 complaints that IIROC received from Investment Dealers under the ComSet Regulations can hardly be referred to as "granular".

Each one of those grains represents a singular investor who has registered a complaint with the Investment Dealer. Collectively, all those "grains" involve hundreds of thousands of hard earned savings dollars that are part of investor disputes. Each one of those grains also represents disputes with the Investment Dealer and in all probability with the Dealer's "Advisor" employees.

IIROC must have logged in each of those 9,461 complaints "grains" and must have a record 2,325 Case Assessment files that IIROC opened. As a member of the investing public I would appreciate knowing how many of those complaints were registered by IIROC from each of the named Investment Dealers I quoted.

Let me put this proposition to you. When you are preparing to spend money on any kind of purchase, before you make that commitment, in your own best interests, if you are smart, you certainly are going to check out the reputation of whom you are going to do business with. This is why your refusal to provide the "granular information" that I have requested does no favours for those Investment Dealers who have a good reputation by hiding from the public the Investment Dealers who have a history of an unacceptable reputation. As to which Investment Dealer has a good reputation and which Investment Dealer has a not-so-good reputation, let the investing public be that judge.

If you cannot provide the information requested and for the reason you mentioned, then IIROC is hardly living up to its mantra as a footnote to your email, "IIROC: Protecting Investors and Fostering Fair and Efficient Capital Markets across Canada"

Looking forward to a positive response.

Regards

Peter Whitehouse
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