Investment industry regulator closing in on fines owed – The Globe and Mail

Canada’s regulator of investment dealers says more consistent enforcement powers have made it better at collecting the millions of dollars in fines it imposes each year, but that ensuring the money is paid back remains a slow and imperfect process.

The Investment Industry Regulatory Organization of Canada (IIROC), which oversees 174 investment firms and their advisers, said in its latest enforcement report, released Thursday, that collection rates jumped to 79 per cent in its 2020 fiscal year and 60 per cent in 2021. Both of those figures are far higher than the regulator’s previous collection rates, which ranged from 8.3 per cent to 21.3 per cent between 2014 and 2017.

The regulator is generally able to collect all the fines it imposes on investment dealer firms, which want to stay in good standing with IIROC. It received 100 per cent of the $1.5-million in penalties it levied against companies in the 2022 fiscal year, which ended March 31.

So far, IIROC has collected 18 per cent of the $2.8-million in fines it imposed against individual advisers in the 2022 fiscal year. But it expects that proportion to rise much higher over the coming year as courts enforce fines, some penalized advisers make monthly or quarterly installments, and payments stemming from decisions handed down late in the year start to flow in.

Uncollected fines against individuals have been a sore spot for IIROC and another self-regulatory organization, the Mutual Fund Dealers Association (MFDA). In response, the regulators have put pressure on provinces and territories to grant them greater, more consistent legal powers to collect fines through courts, and to investigate crimes against investors. The expansion of those powers in Ontario in 2017 and British Columbia in 2018 (those two provinces are home to the lion’s share of IIROC’s investigations and enforcement actions) marked a turning point.

Since November, when Newfoundland and Labrador signed on as the sixth province to give IIROC what it calls a “full enforcement toolkit,” the regulator has been able to enforce fine collection through the courts in every province and territory in Canada.

Before the changes, individual investment advisers facing penalties could avoid paying fines by walking away from the securities business and abandoning their IIROC registration.

“People would just leave the industry and we really had no real, tangible way to collect that money,” Charles Corlett, IIROC’s vice-president of enforcement, said in an interview. “Now we can take steps through the courts to collect those fines the same way you would after you are successful in a civil trial.”

More recently, Mr. Corlett has seen a rise in penalized advisers “who are just simply agreeing to pay us” without IIROC having to follow through on the threat of going to court. “That is something of a huge sea change in the sense that those people are recognizing, ‘You know what, I have to pay this, I am accountable to the industry for having been disciplined,’ ” he said.

Yet it can still take years for IIROC to collect money from fines. Anywhere from 20 to 40 per cent of the penalties imposed are still going uncollected. Even though the regulator now has the power to find assets, garnish wages or seize homes, “the sad fact is that some people who are involved in the enforcement process, by the time they are in trouble … they may be close to insolvency,” Mr. Corlett said.

The full toolkit of powers provinces such as Newfoundland, Alberta and Quebec have provided to IIROC allows it to collect and present evidence at hearings, and protects the regulator against malicious lawsuits. But IIROC still doesn’t have all of those extra powers in Ontario and B.C. “We still think it’s a priority to try to get the full enforcement toolkit where we can,” Mr. Corlett said.

Later this year, a new self-regulatory organization is set to launch that will merge the functions of IIROC and the MFDA. It will be led by current IIROC chief executive officer Andrew Kriegler.

The nearly $4.4-million in total fines, disgorgements and costs imposed by IIROC in the 2022 fiscal year was roughly double the previous year’s total of $2.2-million, and comparable to several prior years. IIROC completed 76 investigations, and referred 41 per cent of those files for prosecution, which was the highest rate since 2018.

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