IIROC Proposes Minor Contravention Program and Early Resolution Offers

May 22, 2019

New disciplinary programs would seek to resolve cases efficiently without more formal disciplinary proceedings

Minor Contravention Program

Under the current disciplinary process, IIROC Staff have various options available to them following to the completion of an investigation into regulatory contraventions. Specifically, Staff may (i) take no action; (ii) issue a Cautionary Letter; or (iii) initiate formal enforcement proceedings. The MCP would target cases that require a more serious regulatory response than a Cautionary Letter but that don’t warrant more formal disciplinary proceedings. According to IIROC, this would provide for greater flexibility in the enforcement process.

In cases deemed appropriate for MCP resolution, it is proposed that IIROC Staff will provide a Minor Contravention Notice in lieu of initiating disciplinary proceedings that sets out the particulars of the contravention. If the person subject to the notice agrees and admits to contravening the specified IIROC requirement, a Minor Contravention Notice Agreement will be submitted to a one-member hearing panel for ratification. A fixed fine of $5,000 will then be imposed on the Approved Person.

In determining the appropriateness of using the MCP in a particular case, IIROC Staff will consider various criteria, including whether (i) the contravention was technical in nature; (ii) the contravention was an isolated incident; (iii) the contravention resulted in harm to clients or market integrity, or benefit to the firm or individual engaged in the conduct; and (iv) the conduct was unintentional or inadvertent. Where these criteria are met, Staff will also consider additional factors such as whether there had been an admission of wrongdoing, self-reporting, or corrective measures taken.

Ultimately, the implementation of the MCP is intended to expand the options available to IIROC enforcement staff. IIROC previously published a proposal on the subject last year, and the updated proposal takes into account stakeholder comments. Notably, under the most recent proposal, and unlike last year’s proposal, the MCP process would only be available to Approved Persons such as Directors, Chief Compliance Officers, and Registered Representatives, and not to Dealers.

Early Resolution Offers

According to IIROC, settlement agreements are currently typically achieved after the completion of a full investigation and extensive negotiations between the alleged wrongdoer and IIROC Staff. Under the Early Resolution Offers proposal, IIROC Staff would make a settlement offer earlier in the enforcement process, which would include a reduction of 30% on the sanctions Staff would otherwise seek. The offer would be open for 30 days and if rejected, the disciplinary action would proceed through the normal process. The initiative would thus seek to encourage the timely resolution of enforcement cases.

IIROC Staff would consider various criteria in determining the appropriateness of making such an offer, including: (i) whether the scope of misconduct had been determined; (ii) the extent of cooperation by the subject of the investigation; (iii) the extent to which non-compliance had been remedied or will be remedied; (iv) the compensation of client losses or profits disgorged; (v) whether there had been internal discipline in the case of individuals; and (vi) whether there had been a willingness expressed to resolve the matter in a timely manner. According to IIROC, such early resolutions would benefit the parties involved, protect investors and deter future wrongdoing.

For more information, see IIROC Notice 19-0076.

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