Canada’s brokerage industry regulator has fined Scotia Capital, the wealth advisory unit of Scotiabank, $500,000 for selling exempt funds to 1710 hundreds of clients who may not have been eligible to purchase the investment.
The investors were clients of DWM Securities, which was purchased by Scotia Capital in 2011. DWM amalgamated with Scotia Capital under the HollisWealth brand.
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Investment Industry Regulatory Organization of Canada (IIROC) said Scotiabank investigated and self-identified the issues after the amalgamation.
According to the regulator, most of the investments took place before Scotia acquired DWM, although some occurred after the acquisition but before the division was amalgamated into Scotia’s operations.
As per the settlement documents filed with IIROC, Scotia accepted that between September 2005 and June 2013, DWM failed to establish and maintain a system of controls and supervision that was adequate to ensure that certain clients were qualified to purchase investment funds offered pursuant to prospectus exemptions.
Under the settlement, Scotiabank is required to report on the execution of the remediation plan by 30 October 2015 and pay internal fines on individual client advisers ranging from $2,500 to $30,000 for a total of $440,000, which will be donated to charity.
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By GlobalDataAlso, advisers will have to redeem payments to affected clients who suffered losses in connection with identified funds.
Affected advisers and their branch managers will have to rewrite an industry exam on conduct and practices.
The investigation found that among the 1,710 affected clients, over 1,100 of them experienced $16.7m in net gains, while 594 suffered total net losses of $4.5m.
IIROC added that nearly 84% of the individual net losses totaled less $25,000 and just one client lost more than $100,000.
