CIRO is the national self-regulatory organization which oversees Canadian investment dealers, mutual fund dealers and trading activity on debt and equity marketplaces in Canada. CIRO regulates the operations, standards of practice and business conduct of its Dealer Members and their regulated persons with a mandate to enhance investor protection and strengthen market integrity and public confidence while maintaining efficient and competitive capital markets.
APPLICATION
These Sanction Guidelines supersede and replace all previous versions of both the Investment Industry Regulatory Organization of Canada (“IIROC”) Sanction Guidelines and the Mutual Fund Dealers Association of Canada (“MFDA”) Sanction Guidelines and are effective as of February 1, 2024.
The Sanction Guidelines are based upon general principles of administrative and securities law and are consistent with the content and approach taken in the prior versions issued by IIROC and the MFDA.
PURPOSE
The Sanction Guidelines are intended to promote consistency, fairness, and transparency by providing a framework to guide the exercise of discretion in determining sanctions which meet the general sanctioning objectives.
The Sanction Guidelines are intended to assist:
- CIRO Enforcement Staff and respondents in negotiating settlement agreements
- hearing panels in determining whether to accept settlement agreements, and in the fair and efficient imposition of sanctions in disciplinary proceedings
The determination of the appropriate sanction is discretionary and depends on the facts of the particular case. The Sanction Guidelines are not binding and hearing panels retain discretion to impose appropriate sanctions. The Sanction Guidelines are intended to provide a summary of the principles and key factors upon which that discretion may be exercised consistently and fairly.
The principles and key factors are not exhaustive, and hearing panels may consider other applicable principles, determine the relevant aggravating and mitigating factors, and rely on previous decisions when determining what sanctions should be imposed.
OVERVIEW
The Sanction Guidelines are divided into three parts:
Part I – Sanction Principles lists principles to be considered in all cases.
Part II – Key Factors in Determining Sanctions lists key factors that may be taken into consideration.
Part III – Additional Considerations addresses issues that may be relevant to the sanctions to be imposed in a particular case.
Part I – Sanction Principles
The following principles provide a framework that should be considered when determining the appropriate sanction in all cases.
1. Sanctions are preventative in nature and should protect the public, strengthen market integrity, and improve business standards
The purpose of sanctions in a regulatory proceeding is to protect the public interest by deterring future conduct that may harm the capital markets. In order to achieve this, sanctions should be significant enough to prevent and discourage future misconduct by the respondent (specific deterrence) and to discourage others from engaging in similar misconduct (general deterrence).
When considering specific and general deterrence in the imposition of sanctions, consideration should be given to ensuring that the sanctions are proportionate, bearing in mind the extent and seriousness of the misconduct and the impact that the sanctions will have on the respondent. Consideration should be given to the size of the Dealer Member including the firm’s financial resources, nature of the firm’s business and the number of individuals associated with the firm. Similarly, with respect to an individual respondent, consideration may be given to a bona fide inability to pay when imposing a fine (see General Principle No. 5).
Deterrence can be achieved if a sanction strikes an appropriate balance by addressing a Regulated Person’s specific misconduct but is also in line with industry expectations. Any sanction should be similar to sanctions imposed on respondents for similar contraventions in similar circumstances. The sanction should be reduced or increased depending on the relevant mitigating and aggravating factors.
Dealer Members and regulated individuals who breach their regulatory obligations should expect that they will be held accountable through enforcement action. Without effective deterrence, inappropriate conduct may continue and public confidence in the securities industry and the fairness of the capital markets may be seriously damaged. An appropriate sanction should achieve both specific and general deterrence and thereby strengthen market integrity and improve overall business standards and practices in the securities industry.
2. Sanctions should ensure that a respondent does not financially benefit as a result of the misconduct
As a general principle, wrong-doers should not benefit from their wrong-doing. Accordingly, in cases where the respondent benefitted financially as a result of the misconduct, the sanction should require disgorgement of some or all of any amounts obtained, including any losses avoided, directly or indirectly, as a result of the contravention. The purpose of disgorgement is to deter persons from contravening CIRO requirements by removing any incentive to engage in misconduct or non-compliance. Where applicable, disgorgement should be ordered in addition to any fine.
3. Sanctions should be more severe for a respondent with a prior disciplinary record
A respondent’s prior disciplinary record is an aggravating factor and may warrant a harsher sanction than would be required had this been the respondent’s first disciplinary contravention.
A prior disciplinary record for a similar contravention strongly suggests that the prior sanction was not a sufficient deterrent, thereby necessitating an increased sanction in order to address specific deterrence. However, a prior record where the misconduct is different may nonetheless be a factor to consider and it may demonstrate a respondent’s general disregard for compliance with regulatory requirements, the investing public or market integrity in general.
4. For multiple violations, the total or cumulative sanction should appropriately reflect the totality of the misconduct
Where there are multiple violations, the overall sanction imposed should not be excessive or disproportionate to the gravity of the total misconduct. For this reason, a global approach to sanctioning may be appropriate where the imposition of a sanction for each contravention would have the effect of imposing on the respondent a cumulative sanction that is excessive. Depending on the facts and circumstances of a case, however, multiple contraventions may be treated individually such that a sanction is imposed for each contravention so long as the total sanction is proportionate to the overall misconduct.
In addition, numerous, similar contraventions may warrant higher sanctions since the existence of multiple contraventions may be treated as an aggravating factor.
5. A respondent’s ability to pay may be a relevant consideration when imposing a monetary sanction or costs
Inability to pay is a relevant consideration in determining the appropriate financial sanctions to be imposed on a respondent. It should not be considered a predominant or determining factor, but it may be relevant depending on the circumstances and nature of the misconduct, and consideration of other applicable factors such as general and specific deterrence and the need to ensure public confidence in the disciplinary process.
The burden is on the respondent to raise the issue and provide evidence of financial hardship. Evidence of financial hardship should be in the form of sworn affidavits or declarations, along with standard or commonly accepted documents, such as tax returns, bank, and investment account statements, audited financial statements, or other externally verified financial statements.
Evidence of inability to pay could result in the reduction or waiver of a fine, and/or in the imposition of an installment payment plan. In cases in which a hearing panel reduces or waives a fine based on a bona fide inability to pay, the written decision should indicate the basis for doing this.
6. A respondent may be entitled to credit for cooperation for providing proactive and exceptional assistance to CIRO Enforcement Staff
Regulated Persons are required to cooperate fully with investigations, to respond to requests for information in a timely and straightforward manner, attend interviews as requested, and to report certain events or information to CIRO in accordance with regulatory requirements. Required cooperation with a regulatory investigation will not be considered proactive and exceptional.
Enforcement Staff may consider granting a respondent credit for cooperation in the form of reduced sanctions and costs where the respondent provided proactive and exceptional cooperation. (See Enforcement Staff Policy Statements on Credit for Cooperation and Early Resolution Offers).
Part II – Key Factors in Determining Sanctions
The following key factors should be considered, where applicable, in fashioning an appropriate sanction. The list sets out commonly considered factors and is not exhaustive. Hearing panels may consider case specific factors in addition to those listed here.
- The scope of the misconduct, including the number, size, and character of the transactions at issues.
- Whether the respondent engaged in numerous acts and/or a pattern of misconduct.
- Whether the misconduct occurred over an extended period of time.
- Whether the respondent’s misconduct was intentional, willfully blind, or reckless.
- Extent of harm to clients or other market participants.
- Extent of harm to market integrity or the reputation of the marketplace.
- Whether any affected client was vulnerable.
- The respondent's prior disciplinary history (see Principle No. 3).
- The amounts the respondent obtained or attempted to obtain, or the loss the respondent avoided or attempted to avoid, as a result of the improper activity (see Principle No. 2).
- In the case of individuals, whether the respondent accepted responsibility for and acknowledged the misconduct to their employer or the regulator prior to detection and intervention by the Dealer Member or regulator.
- In the case of Dealer Members, whether the respondent accepted responsibility for and acknowledged the misconduct to the regulator prior to detection and intervention by the regulator.
- Whether an individual respondent was subject to internal discipline by the Dealer Member, discipline by another regulator, or criminal penalties for the same misconduct.
- Whether the respondent voluntarily employed subsequent corrective measures to revise general and/or specific procedures to avoid recurrence of misconduct.
- Whether the respondent made voluntary acts of compensation, including voluntary disgorgement of commissions, profits, other benefits and/or payment of restitution to clients.
- Whether the respondent provided proactive and exceptional assistance to CIRO in the investigation of the misconduct (see Principle No. 6, and CIRO Staff Policy Statements on Credit for Cooperation and Early Resolution Offers).
- Whether the respondent attempted to delay CIRO’s investigation, conceal information or their conduct from CIRO, or provided inaccurate or misleading information or testimony to CIRO.
- Whether the respondent demonstrated reasonable reliance on competent supervisory, legal, or other professional advice.
- Whether the respondent received prior warnings or specific direction and training that should have alerted them that the conduct was improper, or contravened the Dealer Member’s policies or procedures, or contravened CIRO rules or securities legislation.
- Whether the respondent attempted to conceal their misconduct or to lull into inactivity, mislead, deceive, or intimidate a client, regulatory authority or, in the case of an individual respondent, the Dealer Member with which they are/were associated.
- Whether the respondent failed to heed regulatory guidance, or the Dealer Member’s policies and procedures, with respect to the misconduct at issue.
Part III – Additional Considerations
Hearing panels may impose any of the sanctions authorized pursuant to the rules of CIRO. Sanctions in disciplinary proceedings are intended to prevent the recurrence of misconduct and deter others from similar misconduct. Sanctions may be tailored to the misconduct at issue in each case. This necessitates a review of the nature of the misconduct, the degree of responsibility by the respondent, and determining the relevant aggravating or mitigating factors.
The extent of the harm caused by misconduct is an important factor in determining sanction (see Key Factors No. 5 and 6). Harm may sometimes be quantified by the size of the financial loss suffered by clients, other individuals, or the Dealer Member. Voluntary acts of compensation, restitution, or disgorgement by a respondent (see Key Factor No. 13) may be treated as a mitigating factor. However, failure to offer or pay adequate compensation may be treated as an aggravating factor. The risk of financial loss to which the investor was exposed may also be a relevant factor, even if actual harm did not occur.
A respondent’s misconduct may also have subjective impacts on investors (emotional, physical, or mental), and damage the reputation of the Dealer Member or the integrity of the securities industry or regulatory process.
Fines and Disgorgement
Hearing panels may impose a fine not exceeding the greater of $5,000,000 for each contravention, and an amount equal to three times the profit made or loss avoided by the respondent.
The amount of the fine should be commensurate with the seriousness of the misconduct. A fine should not be viewed as a “licensing fee” or “cost of doing business”.
As set out in Part I, disgorgement should be ordered, where applicable, to ensure that a respondent does not financially benefit from the misconduct and to remove any incentive to engage in non-compliance with regulatory requirements.
Suspensions
Hearing panels may impose suspensions on Dealer Members and individual respondents for any period of time and on any terms and conditions. A suspension should be considered where, among other things:
- there has been one or more serious contraventions;
- there has been a pattern of misconduct;
- the respondent has a prior disciplinary history;
- the contraventions involved fraudulent, willful and/or reckless misconduct; or
- the misconduct in question has caused some measure of harm to investors, the integrity of a marketplace or the securities industry as a whole.
Where the contravention relates to a respondent acting in a supervisory capacity, it may be appropriate to suspend the respondent from acting in any supervisory capacity for a period of time, and from all registered activities when the supervisory failings are so severe as to call into question the respondent’s general fitness to act in any registered capacity.
Dealer Members should exercise due diligence and take precautions in relation to the conduct of Regulated Persons who are suspended to ensure those individuals do not, and are not incentivized to, engage in securities-related activities during the period of suspension.
Permanent Bars
Hearing panels may terminate or permanently bar a respondent from the securities industry. A permanent bar should be considered where, among other things:
- the contraventions involve significant harm to the investing public, the integrity of the market or the securities industry;
- the misconduct had an element of criminal or quasi-criminal activity; or
- there is reason to believe that the respondent cannot be trusted to act in an honest and fair manner in their dealings with the public, their clients, and the securities industry as a whole.
A fine and disgorgement should be considered even where a permanent bar is imposed in cases involving significant harm to investors or to the integrity of the securities industry as a whole.
Remedial Sanctions
Remedial sanctions tailored to the specific misconduct can be a useful tool in effectively addressing regulatory misconduct. To address the misconduct effectively in any given case, a hearing panel may design specific remedial sanctions in addition to, and other than, a fine, disgorgement or suspension.
For example, a hearing panel may impose sanctions that: (i) require a Dealer Member firm to submit for the Corporation approval and/or implement procedures for improved future compliance with regulatory requirements; (ii) require a Dealer Member firm to retain a qualified independent consultant to develop and/or implement procedures for improved compliance with regulatory requirements; (iii) require a Dealer Member firm to implement heightened supervision of certain individuals, branches or departments in the firm; (iv) limit the activities of a Regulated Person, including suspending or barring a Regulated Person from acting in a supervisory capacity; or (v) require professional re-qualification by the writing of an exam or the successful completion of a remedial course of study. This list is illustrative, not exhaustive, and is included to provide examples of the types of sanctions that may be designed to address specific misconduct.