National Bank Financial sanctioned for internal control failings

In a settlement with the Investment Industry Regulatory Organization of Canada (IIROC), National Bank Financial Inc. (NBF) is being sanctioned for internal control failings that were exploited by advisors.

An IIROC hearing panel approved a settlement with NBF that will see the firm pay a $250,000 penalty and $40,000 in costs to resolve allegations that it violated the self-regulatory organization’s rules by failing to have adequate controls over the opening of options accounts and trading error corrections.

According to the settlement, these failings enabled four accounts to be opened “erroneously.” This resulted in the clients pursuing a risky, high-volume trading strategy that generated excess commissions for the advisor while producing $272,325 in losses for the clients, and margin deficiencies in one client’s account.

The inadequate controls also resulted in the firm failing to detect purported trading error corrections that were actually just used to boost the performance of the clients’ accounts by almost $150,000.

“All of the purported error corrections were presented to the [firm] by an investment advisor who represented to the [firm] that the investment advisor had made trading errors that needed correction, when in fact the investment advisor had not made any errors but instead sought to artificially enhance the performance of client accounts,” the settlement said. “The investment advisor abused the trust of the [firm] by engaging in deliberate deception.”

The advisors involved were terminated, and the clients that lost money due to the unsuitable, risky trading were compensated by the firm, the settlement noted. The firm has also since beefed up its controls.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.