Proposal on Distributing Funds Disgorged and Collected through New SRO Disciplinary Proceedings to Harmed Investors

Summary/details:

Currently, harmed investors cannot receive a payment from the New Self-Regulatory Organization of Canada (New SRO)1 related to their losses even if disgorgement was ordered in disciplinary proceedings against their investment firm or investment advisor who breached the regulatory requirements. While disgorgement orders are not imposed for the purpose of compensating investors, the funds received under these orders could be distributed to investors to offset some of the losses they incurred as a result of the conduct giving rise to the order.

Between April 2009 and December 2022, in 77 enforcement cases, IIROC hearing panels ordered $7.9 million in disgorgement, of which IIROC collected over $1 million.

MFDA hearing panels also ordered disgorgement, which was included in the global monetary sanction imposed on the respondents and collected through the MFDA enforcement proceedings.

In 2022, an internal working group (Working Group) reviewed regulatory models that exist in various jurisdictions for providing payments to harmed investors from disgorged funds and prepared a proposal on how the disgorged funds collected through disciplinary proceedings could be paid to harmed investors in the New SRO context.

New SRO does not have the ability to order compensation or restitution. As a regulator, the focus of New SRO is compliance with and enforcement of high industry standards and regulatory requirements.  There are several dispute resolution and compensation options available to investors in Canada: complaints to their firms, which may result in private settlement and, where unsuccessful, may be escalated to the Ombudsman for Banking Services and Investments (OBSI), or may proceed to arbitration or civil court. As such, rather than creating a standalone restitution program, the Working Group has recommended that New SRO build on its current enforcement processes, which already include disgorgement and collection of the funds through disciplinary proceedings to provide a mechanism for the distribution of these funds to harmed investors.

New SRO publishes the proposal for comments and welcomes feedback from all stakeholders.

  • 1Prior to January 1, 2023, Investment Industry Organization of Canada (IIROC) and the Mutual Fund Dealers Association of Canada (MFDA).

Date opened: February 1, 2023

Date closed: May 1, 2023

Status: Concluded

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