Distributing Funds Disgorged and Collected through CIRO Disciplinary Proceedings to Harmed Investors

Background on Disgorgement at CIRO

Previously, harmed investors could not receive payment from CIRO for any losses even if disgorgement was ordered in disciplinary proceedings against their investment firm or investment advisor who breached the regulatory requirements.

CIRO’s Disgorgement Distribution Program

When a person or company is alleged to have engaged in misconduct in relation to requirements under the CIRO rules or related requirements under applicable securities laws, CIRO may bring enforcement proceedings before a hearing panel. Hearing panels can impose various monetary and non-monetary sanctions. Where a hearing panel has found that there has been a contravention of requirements under the CIRO rules, one of the orders they may make is an order that the registrant disgorge to CIRO any amounts obtained as a result of the contravention.

The purpose of a disgorgement order is not to compensate investor losses. Rather, disgorgement orders are made to prevent a wrongdoer who has engaged in misconduct from benefitting from their misconduct, to deter them and others from engaging in similar misconduct, and to restore confidence in the capital markets. Disgorgement is therefore distinct from restitution. Restitution is a remedy that aims to restore a person to the position they would have been in if not for the improper action of another. While disgorgement itself is not compensatory, the Disgorgement Distribution Program advances investor protection by introducing a mechanism to distribute disgorged funds to investors who suffered direct financial losses.

CIRO makes reasonable efforts to collect monetary sanctions imposed by hearing panels, including collecting on disgorgement orders. In some situations, there may be little or no money, assets or property that can be seized for collections. However, to the extent CIRO can collect money under a disgorgement order, CIRO will distribute the money collected under the Disgorgement Distribution Program to investors who incurred financial losses as a result of the contravention.

The Disgorgement Distribution Program is a claims-based process which relies on information submitted by applicants to prove their claims. Disgorgement is a remedy that focuses on the amount obtained by the respondent as a result of the contravention. Disgorgement does not focus on “who lost what”. Accordingly, CIRO may not have information to substantiate financial losses incurred by specific harmed investors. Therefore, it is the applicant’s responsibility to provide their best information so that CIRO can make determinations about their claim.

Eligible investors may apply to receive a payment from the Disgorgement Distribution Program by submitting a claim during the claims period set out in CIRO’s published notice, supported by information and documentation demonstrating their direct financial losses. CIRO will review and determine eligibility and distribution amounts on a prorated basis. Once all claims are assessed, CIRO will distribute the disgorged funds to eligible applicants in accordance with the Disgorgement Distribution Program Policy, as elaborated in the Disgorgement Distribution Program Guidance and Procedures.

CIRO sought and received the necessary regulatory approvals from the Canadian Securities Administrators (CSA) to use the CIRO Restricted Fund for the purposes of the Disgorgement Distribution Program. These approvals authorize CIRO to apply funds disgorged and collected through its disciplinary proceedings toward distributions to harmed investors and administration of the Program.

CIRO’s Disgorgement Distribution Program Website

CIRO has launched a dedicated section on its website. This new resource provides information about the Disgorgement Distribution Program, outlines the distribution process and allows investors to:

• view new disgorgement orders and track amounts collected,
• register to receive updates about potential future distributions,
• access details about any related distribution process and how to submit a claim.

Method of Distribution

There are two potential methods of distribution. The first involves CIRO conducting a distribution directly. The second involves the appointment of an external administrator and is typically reserved for more complex distribution cases.

The method of distribution selected by CIRO will depend on the circumstances of each case. It is anticipated that most distributions will be conducted by CIRO. CIRO will generally appoint an external administrator only when a distribution is especially complex – for example, if there is a large group of potential applicants who are hard to identify, if the distribution involves new legal issues, if it is difficult to quantify financial losses or locate eligible applicants.

Proposal and Other Developments

Since the first publication of the Disgorgement Distribution Proposal in February 2023, CIRO has, among other initiatives:

• published the Investment Dealer and Partially Consolidated (IDPC) Rules that govern the activities of investment dealers and dual-registered dealers,
• published the Mutual Fund Dealer (MFD) Rules that govern the activities of mutual fund dealers,
• announced the Rule Consolidation Project objectives, principles and roadmap, and proposed new rules as part of the Rule Consolidation Project, including extending disgorgement to mutual fund dealers,
• received and incorporated input from the CIRO Investor Advisory Panel,
• received and considered comments from the public consultation twice,
• assessed the Proposal’s impact on investors/clients, CIRO dealers and CIRO (set out below).

Public Consultation and CIRO’s Responses

Throughout public consultations, most commenters expressed support for and commended CIRO’s efforts to ensure disgorged funds are distributed to harmed investors, as set out in the Disgorgement Distribution Proposal, emphasizing that a mechanism for distributing disgorged funds to investors would strengthen CIRO’s investor protection mandate and enhance investors’ sense of trust in financial regulation and the industry.

CIRO’s responses to the public comments can be found in the summaries of comments to Notice 23-0010 and Notice 24-0290.

Impact Assessment

Based on our assessment, we have concluded that the Disgorgement Distribution Program will enhance investor protection and market integrity by offsetting certain investor losses through distributing disgorgement to harmed investors.

Although the harmed investors may not recoup all of their losses through the Disgorgement Distribution Program, receiving a portion of their losses outweighs the possible confusion and other complexities of the current investor recovery framework where investors may seek full recovery of their losses through the existing compensation options (i.e., restitution), such as civil courts, the Ombudsman for Banking Services and investments (OBSI) or arbitration. This results in a net positive impact of the Disgorgement Distribution Program on investors/clients of CIRO dealers.

Conclusion

In light of the consultation feedback received, the impact assessment conducted, and the approvals obtained from the CSA, CIRO is proceeding with the implementation of the Disgorgement Distribution Program as of April 1, 2026. CIRO is satisfied that the Program is in the public interest and appropriately balances investor protection, market integrity, and operational fairness in the distribution of disgorged funds to harmed investors.

Appendices

Appendix A – Summary of Comments Received and CIRO’s Responses (Notice 24-0290)

Appendix B – CIRO Disgorgement Distribution Program Policy

Appendix C – CIRO Disgorgement Distribution Program Guidance and Procedures