Canaccord to pay over $1-million to settle claims of inadequate supervision of retail accounts

In a wide-ranging settlement with regulators Friday, the Canadian wealth management and retail division of Canaccord Genuity Group, one of the country’s largest independent investment dealers, acknowledged shortcomings in some of its most basic business practices over a number of years — including supervision of its branches.

“From 2005 through 2010 Canaccord failed to ensure that certain of its branch managers properly carried out their responsibility to supervise retail account activity,” the Investment Industry Regulatory Organization of Canada said in a document released after a hearing in Vancouver, where the firm is based.

“At the same time Canaccord’s head office… supervision of retail account activity failed to detect various instances of unsuitable holdings and excessive trading.”

Branch managers “failed to question” and head office practices “failed to detect or address… red flags indicative of suspicious or potentially manipulative trading related to clients” in Prince George and Vancouver, British Columbia, according to the “factual background” spelled out in the settlement that was approved by an IIROC panel.

The settlement covers additional supervisory failures in Montreal and Kelowna.

“The result of this dual failure [in branches and at head office] was that significant losses or activity that was potentially unfair to other market participants went undetected,” the settlement document says.

IIROC also pursued a separate issue concerning Canaccord’s refusal between 2009 and early 2011 to adopt procedures to ensure only qualified investors put their money in private placements.

Despite the widespread problems, Canaccord agreed to pay a “global penalty” of just over $1-million. This includes a $750,000 fine and a requirement to “disgorge” $310,000 in commissions. The firm will also pay $50,000 towards IIROC’s investigation costs.

The investment industry’s self-regulatory agency said there were mitigating factors, including that Canaccord has replaced its branch managers in Montreal, Kelowna and Prince George, as well as a number of registered representatives in those branches.

Some of the former Canaccord employees have been subject to separate enforcement cases brought by the regulator. In many cases, clients who sustained losses were compensated by Canaccord or by its former employees.

IIROC also noted that the firm has spent about $1-million implementing and maintaining a new electronic supervisory system.

“Today’s settlement is not a reflection on the current Canaccord Genuity,” said Scott Davidson, an executive vice-president at the firm. He added that chief executive Paul Reynolds took over as Canaccord’s key regulatory executive – also known as the ultimate designated person, or UDP — a couple of years ago.

“He’s ensured the firm has made great strides to address the issues raised by the regulator,” Mr. Davidson said.

Canaccord has undergone a business transformation in the past few years, pushing into new territories outside Canada such as Singapore through acquisitions, and adding to its size and scale in the United Kingdom and the United States.

The biggest acquisition was made in late 2011, shortly after chief operating office Mark Maybank left the firm. Canaccord purchased Collins Stewart Hawkpoint, an independent financial advisory firm with research, trading and wealth management operations

http://business.financialpost.com/2013/11/29/canaccord-to-pay-over-1-million-to-settle-claims-of-inadquate-retail-supervision/