Absence of IIROC legislation in N.L. heightens risk for misconduct

Attention is being paid to Newfoundland and Labrador as the only region in Canada that doesn’t permit the Investment Industry Regulatory Organization of Canada (IIROC) to enforce fines for misconduct. The scrutiny is coming as a result of a recent case brought against an investment advisor who is being accused of transferring more than $750,000 of client cash to her personal bank account.

As the IIROC has no power to enforce penalties in the region, there is heightened concern that rogue stockbrokers will simply be allowed to walk away and avoid any ramifications for their actions.

Co-head of Torys’ Securities Defence and White Collar Defence and Investigations practices John Fabello spoke to CBC on the importance of Newfoundland and Labrador allowing the IIROC to prosecute within the region and noted that the consequences of embezzling money from a client can act as a huge deterrent to dishonest investors.

“If they break the rules, there are going to be serious consequences,” John said.

“[When] the fines can be enforced in court, then maybe it will deter them from wrongdoing in which they would otherwise engage. And that’s why it's important.”

John added that while cases of malpractice in this sector do occur, it is a very small number of stockbrokers who would act in such a way.

Read: To find out more information on how to mitigate the risks of corporate misconduct, read our article: How to reduce exposure associated with pandemic-related corporate misconduct.

“The vast majority of stockbrokers in Canada seek to do the right thing, and if they make a mistake, well, it’s unintentional and that happens from time to time,” John said.

“There’s a very, very small percentage of people and brokers who actually intend to harm their clients to take money from them and act in an inappropriate way.”

Read more about our White Collar Defence and Investigations Practice, which helps businesses manage and mitigate risks associated with government oversight and regulatory power to impose sanctions which can lead to litigation and reputation damage.