CIRO seeks stiffer enforcement sanctions

Under the latest phase of proposed consolidated rules for investment dealers and mutual fund dealers, the maximum fine for regulatory violations would be doubled to $10 million from $5 million, and the terms of disciplinary suspensions would be toughened.

The Canadian Investment Regulatory Organization (CIRO) published the latest tranche of proposed rule changes as part of its ongoing project to merge its two rulebooks into a single set of rules that would apply to both types of dealer — harmonizing requirements and curbing sources of regulatory arbitrage.

As part of the latest proposals, which address the rules regarding compliance investigations and enforcement, among other areas, the self-regulatory organization (SRO) is proposing to double the maximum penalty for rule breaches to $10 million per violation.

In a notice detailing the proposals, the SRO noted that hearing panels have approved settlement agreements that involve payments of more than $5 million, and even payments of more than $10 million in certain cases.

“Our proposal would not only allow our hearing panels to order sanctions consistent with those payments but would also have an increased deterrent effect,” it said.

The SRO is also proposing to expand the effect of bans or suspensions that are imposed in disciplinary actions by prohibiting registrants from hiring and paying anyone who has been sanctioned in an enforcement action for the duration of their suspension.

“We are proposing to expand this prohibition for both investment dealers and mutual fund dealers to address certain practices of concern,” it said, noting that the U.S. Financial Industry Regulatory Authority treats these sorts of sanctions this way too.

Additionally, the proposed changes would allow the Ombudsman for Banking Services and Investments to share information about investigations and complaints involving dealers with CIRO. Currently, the investment dealer rules prohibit this information sharing, while the fund dealer rules allow it.

Along with the rules around enforcement, the latest phase of proposed consolidated rules addresses clearing and settlement of trades and trade delivery standards, and certain member activity requirements.

CIRO said that, overall, the proposed changes are expected to have a positive impact on investors, to be neutral for investment dealers, and to be a minor negative for fund dealers.

“While there could be some negative impacts to mutual fund dealers, we concluded these impacts were outweighed by the positive impacts the [proposed rules] would have,” it said.

The proposals are out for comment until July 17.