The Mutual Fund Dealers Association of Canada (MFDA) has published new Sanction Guidelines which will take effect on November 15, 2018. The Sanction Guidelines, which replace the MFDA’s Penalty Guidelines, in place since 2006, are intended to promote consistency, fairness and transparency while focusing on a principles-based approach to sanctioning. While the Sanction Guidelines are not binding on MFDA Hearing Panels, they are intended to provide a summary of the key factors that Hearing Panels may refer to in exercising their discretion in imposing sanctions.
The Sanction Guidelines identify the following Key Factors to be considered in determining sanctions that promote the MFDA’s goal of protecting the investing public:
- General and specific deterrence. A sanction should achieve both general and specific deterrence in that it should (i) discourage the Respondent from engaging in future misconduct and (ii) strike an appropriate balance between the Respondent’s misconduct and the public’s expectations as to an appropriate sanction in the circumstances.
- Public confidence. Sanctions should be in line with what the public would reasonably expect for the misconduct in question.
- The seriousness of the proven allegations. Distinctions should be drawn between conduct that was unintentional or negligent and conduct that was intentional, manipulative and fraudulent. Whether the misconduct was an isolated event or part of a series of violations will also be relevant. Other factors to consider in determining the seriousness of the allegations include:
- Attempts to conceal, mislead, deceive or intimidate will be considered an aggravating factor.
- Vulnerability. Evidence that the Respondent’s conduct involved vulnerable investors, including those who are at risk due to age, disability, limited investment knowledge, or a high level of trust and reliance on the Respondent, will be an aggravating factor.
- Evidence of planning and premeditation will be an aggravating factor.
- Reasonable reliance. Reasonable reliance by the Respondent on competent supervisory, accounting or legal advice will be a mitigating factor.
- Prior warnings. Evidence that the Respondent engaged in misconduct despite having received prior warnings will be an aggravating factor.
- The Respondent’s recognition of the seriousness of the misconduct. The Respondent’s acceptance of responsibility prior to intervention by the MFDA and an admission of wrongdoing will be considered mitigating factors. Attempts to frustrate, delay or undermine the MFDA investigation or hearing will be aggravating factors.
- Benefits received by the Respondent. Where the Respondent receives a financial benefit from the misconduct, which may include the avoidance of a loss, the sanction should reflect the extent of that financial benefit.
- Harm suffered by investors. The harm suffered by investors can be quantified in terms of the type, number and size of transactions at issue, the number of investors affected by the misconduct, the size of the loss suffered, the length of time over which the misconduct took place, the impact on the investor, the reputation of the Member, and the integrity of the mutual fund industry as a whole.
- Past conduct. Evidence of past misconduct on the part of the Respondent, which includes disciplinary measures imposed by the MFDA and other regulators and tribunals, should be considered in determining an appropriate sanction. Hearing Panels should impose progressive sanctions for each successive instance of misconduct.
- Prior sanctions. Generally, where the Respondent has already received a sanction from a Member or other regulator for the same misconduct at issue before the MFDA, that will be considered a mitigating factor.
- Previous decisions. Previous sanctions imposed in similar circumstances will be instructive, but ultimately each case should be decided on its own facts.
- Totality of the misconduct. Where there have been multiple violations, Hearing Panels should consider the gravity of the totality of the misconduct and impose a proportionate sanction.
- Ability to pay. Evidence of the Respondent’s bona fide inability to pay a monetary sanction may result in a reduction or waiver of a contemplated fine, or the imposition of a payment plan. The onus is on the Respondent to establish an inability to pay. On the flip side, where the Respondent has significant financial resources, a higher fine may be warranted in order to achieve specific deterrence.
- Voluntary implementation of corrective measures. Evidence that the Respondent voluntarily implemented corrective measures to avoid recurrence of the misconduct should be considered.
- Voluntary acts of restitution. Evidence that the Respondent made voluntary acts of compensation, restitution or disgorgement should be considered by a Hearing Panel. The Panel should consider whether the voluntary action was timely and whether efforts at full compensation were made.
- Proactive and exceptional assistance. All Respondents are expected to cooperate with an MFDA investigation. However, evidence of proactive and exceptional assistance by the Respondent will be considered a mitigating factor.
The Sanction Guidelines also identify the types of sanctions available to a Hearing Panel, which include fines; suspension, permanent prohibition, or termination of a Member’s rights and privileges of membership; reprimands; conditions on the authority of an Approved Person; terms and conditions on the membership of the Member; the appointment of an independent monitor or consultant to oversee the Member’s activities; and directions for the orderly transfer of client accounts from the Member.