In Re Dhillon, the Director of Compliance and Registrant Regulation (“Director”) of the Ontario Securities Commission (“OSC” or “Commission”) refused Dhillon’s application for registration under s. 27 of the Ontario Securities Act (the “Act”) on the ground that Dhillon lacked both the proficiency and integrity for registration, and that his registration would otherwise be objectionable (the “Director’s Decision”). Thereafter, Dhillon applied to the OSC for a hearing and review of the Director’s Decision under s. 8 of the Act. Between the time of the Director’s Decision and the time of the hearing and review by the OSC, Dhillon’s sponsor withdrew its sponsorship of his registration.
The OSC’s decision to deny Dhillon’s application considers the impact of the sponsor’s withdrawal of its sponsorship, and sheds light on the test that an applicant must satisfy on an appeal and review of a decision of the Director to deny registration as well as the scope of the Commission’s jurisdiction under s. 8.
Preliminary Issue: Commission’s Jurisdiction under s. 8 of the Act Where the Applicant’s Sponsor Has Withdrawn
Section 25 of the Act requires that an individual seeking to engage in the business of trading in securities be registered as a dealing representative of a registered dealer. As the registered dealer that had originally sponsored Dhillon’s application for registration had withdrawn its sponsorship following the Director’s Decision, the OSC was required to determine, as a preliminary matter, its jurisdiction to grant the relief requested.
The OSC concluded that Dhillon remained a person “directly affected” by the Director’s Decision within the meaning of s. 8, and as such had standing to seek a hearing and review of the denial of his application for registration. Further, the Commission’s authority to make “such decision as it considers proper” under s. 8 of the Act must surely include the authority to set aside the Director’s Decision without approving the registration. Accordingly, while the Commission did not have jurisdiction to approve Dhillon’s application for registration given his unsponsored status, the Commission retained jurisdiction under s. 8(3) to set aside the Director’s Decision to refuse it. The hearing proceeded on that basis.
Presumably the practical effect of this approach is that if Dhillon had succeeded in persuading the OSC to set aside the Director’s Decision, and had he been able to find a dealer to sponsor him, the Director would have been required to grant a further request by him for registration as a dealing representative of that registered dealer, absent additional grounds for denying him status as a registrant.
Burden of Proof on Staff Under s. 27 of the Act
The Commission confirmed that a hearing and review to the OSC of a decision of the Director is a hearing de novo, involving a fresh consideration of the issue. No deference is owed to the Director’s Decision, and Staff bear the burden of proof or persuasion of establishing that the applicant lacks the proficiency or integrity to be registered, or that his registration would otherwise be objectionable.
Staff argued that the burden of proof on Staff was lower than the balance of probabilities standard, based upon the wording of s. 27(1) of the Act that provides that the Director may refuse registration where it appears to the Director that the applicant is not suitable or the registration would otherwise be objectionable. The OSC noted that in F.H. v. McDougall, 2008 SCC 53, the Supreme Court of Canada recognized that it is open to the legislature to change the civil standard of proof on a balance of probabilities through statutory enactment using clear and unambiguous language. However, the language of s. 27 fell short of the type of clear and unambiguous language required to displace the conventional standard of proof. Further, given the impact of a denial or loss of registration on an individual, requiring Staff to establish the preconditions to a denial of registration on a balance of probabilities was not onerous. Ultimately, however, the OSC declined to decide the issue as it did not have a detailed analysis of the phrase, which also appears in other sections of the Act including s. 61 concerning the issuance of a receipt for a prospectus and s. 70 concerning the issuance of an order to cease trade a prospectus distribution. Further, even using the conventional standard of proof on a balance of probabilities, Dhillon was unsuitable for registration.
Decision on the Merits of the Hearing and Review
The Commission confirmed its obligation to act in the public interest when reviewing the Director’s Decision, and to bear in mind certain fundamental principles such as the requirement for the maintenance of high standards of fitness and business conduct to ensure honest and responsible conduct by market participants enshrined in s. 2.1(2)(iii) of the Act.
In determining whether Dhillon was suitable for registration, the Director and the Commission were required to consider whether he satisfied the requirements prescribed in the regulations relating to proficiency, solvency and integrity. The solvency requirement was not an issue in this case.
In this case, the OSC was satisfied on a balance of probabilities that Dhillon was not suitable for registration, based upon a lack of proficiency and prior conduct demonstrating a lack of integrity. On that basis it confirmed the Director’s Decision.
The issue with respect to Dhillon’s proficiency was whether, notwithstanding that Dhillon’s application for registration was dated more than three years after he was last registered in 2012, he could still meet the proficiency requirements in National Instrument 31-103 – Registration Requirements. NI 31-103 requires that a mutual fund dealing representative have passed at least one of the Canadian Investment Funds Course Examination, the Canadian Securities Course Examination or the Investment Funds in Canada Course Examination. Although Dhillon had passed one of those courses in 1990, he was deemed by NI 31-103 not to have passed such an examination as he had not passed it within a three year period prior to his application for registration. Dhillon’s argument to the Director that he satisfied an exemption for individuals who had gained twelve months of relevant securities industry experience during the three year period prior to his application failed. His submission that, notwithstanding that he had not been employed in the industry during that three year period, he had taken several industry related seminars and training courses which should qualify as securities industry experience was rejected by the Director. The OSC agreed with the Director that Dhillon’s attendance at seminars did not amount to 12 months of relevant securities industry experience.
Dhillon also failed to establish that he satisfied the integrity requirements. Dhillon’s prior registration history revealed that he had been the subject of client complaints and compliance deficiencies while working at other dealers, and was found by the MFDA to have breached MFDA rules and to have deliberately misconducted himself. The Commission determined that he had repeatedly used pre-signed forms, recommended unsuitable leverage strategies to clients and engaged in off-book trading activities. He had mistreated compliance staff at multiple firms, and his explanations for his conduct displayed a lack of integrity. The manner in which he responded to regulators when his non-compliance was raised with him also demonstrated his lack of integrity. In sum, the evidence was “truly overwhelming that Mr. Dhillon is effectively ungovernable and completely lacking in personal integrity”.
Whether the use of the words “appears to the Director” in sections 27, 61 and 70 of the Act should be interpreted as importing a standard of proof lower than on a balance of probabilities is unclear and remains to be definitively determined.