What is the extent of retail branch and head office supervision?
Over a six-year period, various retail branches of the dealer registrant were not properly supervised by the dealer’s head office and by its branch managers. The admitted breaches were numerous. The total payments made by the dealer to settle the proceeding were $1.11 million (including a $750,000 fine, $310,000 in profit disgorgement and $50,00 in costs), thus representing one the of the larger IIROC settlements of late.
Key Positions and Law
The branch managers were faulted for failing to effectively carry out the responsibility of identifying and questioning "red flags"—trading that on its face appeared suspicious or potentially unsuitable. These red flags included an elderly client with a 50% growth objective and significant trading, an Immigrant Investor Program account with capital preservation objectives which engaged in significant trading and trading in OTCBB and junior resource stock issues.
Head office was faulted for not monitoring branch managers appropriately (by “only” requiring monthly certifications that they had performed the branch supervision), for not identifying account problems that may have been missed at the branch level, and for not ensuring that red flags were addressed by the branch managers.
Through regulatory settlements, regulators often signal the kind of registrant activity that will give rise to regulatory enforcement action alleging a breach of regulatory requirements. This settlement indicates that the supervisory obligations of firms and branch managers continue to be onerous and the subject of heightened regulatory scrutiny, especially when the accounts of elderly clients and small and micro-cap stocks are involved. Of particular note is the suggestion that the role of head office supervision is to catch questionable activity the branch misses, rather than relying solely on a branch manager’s written representation that he or she performed weekly and monthly reviews.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
For permission to republish this or any other publication, contact Janelle Weed.
© 2020 by Torys LLP.
All rights reserved.