CIRO's 2023-2024 Enforcement Report provides an overview of the enforcement trends and sanction guidelines from the last year and highlights the Enforcement team's efforts to standardize proceedings amongst mutual fund and investment dealers.
The Canadian Investment Regulatory Organization (CIRO) recently released its 2023-2024 Enforcement Report for the 2024 fiscal year (April 1, 2023 to March 31, 2024). This blog will explore the report's key statistics and provide an update on the Enforcement team's steps to better streamline enforcement proceedings of mutual fund and investment dealers.
Last year, our team wrote a blog post on CIRO's inaugural Enforcement Report and called for more meaningful statistics for better understanding and transparency. Unfortunately, this year's report was actually more condensed and lacked additional statistics.
Key Enforcement Trends and Statistics
Much like its inaugural report, CIRO continued to issue separate statistics for its Mutual Fund Dealer (MFD, previously MFDA registrants) and Investment Dealer (ID, previously IIROC registrants) divisions for the majority of the report. However, the report did combine statistics for some sections including the top complaints for advisors and collection rates.
- Rising Complaints: Complaints decreased this year for both MFDs and IDs by almost 22% and 9% respectively. CIRO also flagged the top complaints reviewed for both MFDs and IDs which included unsuitable investments, unauthorized discretionary trading, misrepresentation, and supervision. Most notably, unsuitable investments were the top complaint for both MFDs and IDs by almost 26% and 22% respectively.
- Investigations Landscape: While the number of complaints increased, the number of investigations decreased for both MFDs and IDs last year by almost 18% and 22% respectively. The report failed to provide an explanation or any contributing factors to the decrease in completed investigations, particularly in light of the increase in the number of complaints.
- Top Violations in Enforcement Proceedings: The top regulatory violations for MFDs were pre-signed forms, active signature falsification, and active outside registration status. Notably, there was a decrease of 50% in pre-signed form violations by MFDs from FY 2023. For IDs, suitability, due diligence, and handling of client accounts were substantially higher compared to any other violations. Noteworthy is that both MFDs and IDs had a higher rate of violations for failure to properly supervise advisors than any other violation. This is a concern.
- Changing Enforcement Priorities: Overall, the enforcement priorities for this year remained the same as in FY 2023. The report points to a higher number of enforcement proceedings for investment suitability for MFDs as there were no proceedings for this contravention in FY 2023 and 2 over the last year. Additionally, enforcement proceedings related to supervision for MFDs decreased from 4 proceedings in FY 2023 to 1 proceeding in FY 2024. There were also more proceedings concerning IDs for suitability (an increase from 4 proceedings in FY 2023 to 9 this last year), and firm supervision increased by 50%. While suitability is always an issue, the substantial increase in firms' failure to supervise is a concern.
- Penalties and Collection Rates: The CIRO report demonstrated an increase in collection rates associated with penalties levied against individuals from 10% to 15%. There is no explanation as to why there was an increase however, it may be due to MFDs and IDs having separate statistics for collection rates in past years. Additionally, there was a decrease in collection rates arising from firm/dealer penalties from 100% in FY 2023 to 94% in 2024. CIRO did explain that the decrease was due to some fines being paid in installments. The report clarifies that the firm collection rates will return to 100% when the final installments are completed.
Finding 'Harmony' Amongst MFDs and IDs
The CIRO Enforcement team has been working to integrate members of the Investment Industry Regulatory Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA) following their merger to CIRO in 2023. As such, the CIRO Report highlighted the following actions that were implemented to streamline the enforcement proceedings for all advisors:
- Adopting the 'Sanction Guidelines and Enforcement Staff Policy Statements' effective in February 2024 to better promote transparency and fairness in enforcement proceedings. These streamlined sanction guidelines are a positive development as our team voiced this as an area of concern following the inaugural report last year.
- Establishing a centralized intake process for all public complaints, including MFDs and IDs.
- Unifying decision-making across MFD and ID rule cases to ensure consistency amongst proceedings.
Although we recognize and appreciate that CIRO continues to implement steps to streamline the enforcement proceedings for MFDs and IDs over the last fiscal year, we are hopeful that this trend will continue and perhaps they will provide more meaningful statistics and explanations in future reports.
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