IIROC fines CIBC World Markets for supervisory failures
The regulators are everywhere. Oversight is global. Recently, a Hearing Panel of the Investment Industry Regulatory Organization of Canada (IIROC) accepted a settlement agreement, with sanctions from CIBC World Markets Inc. and Robert Trickey, currently a registered investment representative at the Nelson, British Columbia branch of CIBC World Markets.
At issue, was Trickey’s failure to adequately supervise another registered representative and ensure compliance with Dealer Member Rules 38.1 and 2500. The IIROC found that between 2009 and 2013, Trickey (and CIBC World Markets) failed to adequately supervise the activities of Geraldine Mannings, a registered investment representative at the time, to ensure compliance with Dealer Member Rules 38.1 and 2500.
What happens when compliance is undocumented?
A series of unfortunate events. Trickey, who was the branch manager and Manning’s supervisor, was aware of concerns regarding increases in risk exposure for some of Mannings’ clients, especially those of senior citizens on fixed incomes. He executed suitability queries, but many were resolved because clients reportedly accepted an increase in their risk tolerance which was not noted on their KYC update. In approving these changes, Trickey largely relied on Mannings to verify that her clients understood and accepted the consequences. However, he did not take adequate steps to independently verify and also failed to adequately document all of his supervision activities.
This shortfall was not unnoticed. The CIBC head office compliance department was made aware of the exposures due to the work of several compliance professionals who took steps to address the exposures and to provide ongoing advice and direction to branch management. However, Compliance did not take adequate steps. Instead, they relied on Trickey’s verification only. As a result, CIBC compliance oversight was found inadequate.
Moreover, over three reviews, IIROC staff were unable to locate any written record of telephone calls regarding either a suitability query or a KYC update increasing the risk tolerance. In each instance, the IIROC made recommendations to improve compliance processes, Trickey agreed, but then Mannings continued on as usual.
Who is responsible for compliance missteps?
Trickey was responsible for independently verifying KYC updates, particularly those that only noted increases in clients’ risk tolerances to resolve an outstanding suitability query. Over time, there were numerous suitability queries involving Mannings’ clients. This volume, says IIROC investigators, should have raised a red flag.
Neither Trickey or Mannings were inexperienced newbies. Mannings became a Registered Representative in June 1967 and was employed with Merrill Lynch Canada Inc., Midland Walwyn Capital Inc., and CIBC Wood Gundy until she left the business in 2013 at the age of 77. Trickey has been in the securities industry since 1992.
Has CIBC implemented compliance processes?
Yes, but at what cost? CIBC World Markets agreed to pay a fine of $125,00 and costs of $10,000. Trickey will pay a $40,000 fine and costs of $5,000. For its part, CIBC is implementing new processes and procedures, including a new regional supervision model on a pilot project basis. This model migrates most key supervisory functions once performed by local branch management (including producing branch managers) to a regional team of full-time dedicated supervisors and support staff.
Was noncompliance worth it to CIBC?
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