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2 | INVESTMENT EXECUTIVE NEWS Mid-November 2020 Critics say new enforcement process is unfair to certificants
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Organization of Canada (IIROC), both of which publish allega- tions against registrants as well as decisions and reasons from hearing panels.
There are key differences, however, in how the MFDA and IIROC approach enforcement. For example, both self-regulatory organizations give respondents something akin to a Wells notice before publishing any allegations.
Wells notices — which ori- ginated in the U.S. in the 1970s — are delivered to a respondent by a securities regulator at the conclusion of an investiga- tion into alleged misconduct. These notices outline the char- ges the regulator plans to bring against the respondent to give the respondent an opportunity to open settlement negotiations or argue why the charges should be dropped.
Data indicate that Wells notices result in a substan- tial number of charges being
dropped — at least in the U.S. The Wall Street Journal reported that 20% of Wells notices issued by the U.S. Securities and Exchange Commission in the two years ended September 2012 led to cases being dropped — thus sparing respondents from the reputational damage of pub- lic allegations.
Although Wells notices are not part of FP Canada’s enforce- ment process, Lebrun-Reid says, certificants have ample opportunity to avoid public allegations. Upon receiving a complaint about a certificant’s conduct, FP Canada notifies the certificant and commences a 90-day initial review.
“We’ll have a back and forth with the certificant at that time to determine whether or not [a complaint] will get to an investi- gation,” Lebrun-Reid says. “The certificant has the opportun- ity to demonstrate to us why an investigation isn’t required.”
If FP Canada staff deter- mine the complaint amounts to a proper allegation of mis- conduct, FP Canada launches an investigation into the mat- ter, which typically includes interviews with the certifi- cant, the complainant and any witnesses.
“When a certificant is sub- ject to an investigation, they get a letter from us that sets out the allegations that the investiga- tor has been authorized to look into,” Lebrun-Reid says. “[The letter is] very specific. It will say [something like]: ‘Here are the four allegations we are going to be investigating and you have an opportunity to respond to.’”
The certificant then is asked to provide a written response to each allegation and provide any supporting documents related to their response.
“The certificant has the opportunity at the initial review and during the investigation to essentially deny or indicate why the allegation shouldn’t pro- ceed,” Lebrun-Reid says.
At the conclusion of an inves- tigation, a report is delivered to FP Canada’s independent con- duct review panel, which then determines whether the matter should be closed, closed with a
confidential letter of guidance and advice, or escalated to a disciplinary hearing.
If the panel determines the complaint should proceed to a hearing, a statement of allega- tions is served to the certificant within 45 days and published on FP Canada’s website within five days of being filed.
Ellen Bessner, a lawyer with Toronto-based Babin Bessner Spry LLP who represents finan- cial planners in enforcement proceedings, says FP Canada’s enforcement process doesn’t appear to give certificants a fair opportunity to avoid damaging public allegations.
Although certificants are aware of the allegations made against them at the onset of an investigation, they don’t know which of those allegations — if any — will remain a concern at the conclusion of an investiga- tion, Bessner says. For example, an investigation into four alleg- ations may find that two of them were unfounded.
“FP Canada shouldn’t be making anything public until they give the certificant an opportunity to consider what the investigation has yielded,” Bessner says.
Robert Keller, a securities lawyer with Los Angeles-based Keller Law who previously worked in IIROC’s enforcement division and whose current practice includes enforcement defence, says it’s “rare” that enforcement staff publish a statement of allegations with charges that are completely unfounded, thereby causing undue reputational harm to a respondent. Even so, he believes a Wells process would allow FP Canada enforcement staff to set- tle minor charges quickly and focus on prosecuting more ser- ious cases.
“Not only does [a Wells pro- cess] benefit those innocent theoretical respondents out there who will have the oppor- tunity to be heard before the charges are published, it bene- fits enforcement staff because it allows them to focus on the cases that are the most real and sub- stantiated,” Keller says.
FP Canada does allow
certificants to settle allegations of misconduct, but only at the case conference stage, which takes place after the allegations against a certificant have been published.
Lebrun-Reid stresses that the majority of complaints against FP Canada certificants don’t escalate to a hearing. She says 40%–50% of complaints may lead to an investigation, and about 20% may result in a disci- plinary hearing.
A certificant may admit to misconduct during an inves- tigation and explain the cir- cumstances that led to the misconduct, Lebrun-Reid adds. The conduct review panel may determine that those circum- stances were mitigating factors and recommend that the matter
be closed with a confidential letter of guidance and advice, which would not qualify as a disciplinary ruling.
Lebrun-Reid says that over the past two years, hear- ing panels have “increasingly been awarding orders that involve continuing education requirements” — although those orders may still temporarily sus- pend a certificant’s FP Canada designation.
Clarification: An earlier version of this story may have implied that respondents in FP Canada disci- plinary hearings have the burden of proving the allegations against them are untrue. In any case of misconduct, FP Canada bears the burden of proving the alleged mis- conduct. IE
COMPANY INDEX
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Presumptive bar cases
Some FP Canada en- forcement cases may trigger a presump- tive bar to certification, which also can lead to al- legations being published.
Examples of presump- tive bar cases include cases in which certificants have filed for bankruptcy, been convicted of a crime or sus- pended by a self-regulatory organization for more than one year.
In these cases, FP Canada’s conduct review panel may decide to allow continued certification, al- low continued certification with a confidential letter
of guidance and advice, or refer the matter to a hear- ing panel. If the matter is referred to a hearing panel, a statement of allegations will be published.
— GREG DALGETTY
Association of Canadian
Compliance Professionals ...................... 8 Autorité des marchés financiers .......... 8 Babin Bessner Spry LLP ......................... 2 Bank for International
Settlements ................................................ 4 Canadian Advocacy Council
of CFA Societies Canada ......................... 6 Canadian Coalition for
Good Governance ...................................... 6 Canadian Foundation for
Advancement of Investor Rights .......... 6 Canadian Imperial Bank
of Commerce ............................................. 13 Canadian Securities
Administrators ................................... 1, 7, 8 Carte Wealth Management Inc. ............ 7 CI Investments Inc. ................................... 11 CSA Regulatory Sandbox ....................... 8 DBRS Morningstar Inc. ........................... 13 Edward Jones Canada ............................. 7 FP Canada ................................................... 15 Investment Industry
Association of Canada ............................. 8 Investment Industry Regulatory Organization of Canada ....................... 1, 8 Investor Protection Clinic ....................... 6
Keller Law .................................................... 2 Kenmar Associates ................................... 6 Lazard Asset Management LLC ........... 11 Mackie Research Capital Corp. ............ 13 Mawer Investment
Management Ltd. ...................................... 11 Mutual Fund Dealers
Association of Canada ......................... 1, 8 Norton Rose Fulbright
Canada LLP ...............................................1, 4 Ontario Securities
Commission .................................... 1, 4, 6, 8 Osler Hoskin and Harcourt LLP ............ 8 Portfolio Management
Association of Canada ............................. 6 Private Capital Markets
Association of Canada ........................ 6, 8 RBC Dominion Securities Inc. ............... 7 Refinitiv ....................................................... 13 Richardson GMP Ltd. ................................ 7 ScotiaMcLeod Inc. ..................................... 7 TMX Group Inc. ........................................... 4 Wealthsimple Digital Assets Inc. .......... 8 Wellington-Altus
Private Wealth Inc. .................................... 9
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