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CIRO – Proposed Amendments to the Mutual Fund Dealer Rules – Disgorgement
Letter Summary:
The Canadian Investment Regulatory Organization (CIRO) has proposed amendments to its Mutual Fund Dealer (MFD) Rules to explicitly confirm the authority of hearing panels to order disgorgement. While the rules already allow fines equal to up to three times the profit gained or loss avoided through a violation, the proposed changes aim to harmonize wording with Investment Dealer and Partially Consolidated (IDPC) Rules, providing greater clarity and predictability for Mutual Fund Dealer Members and Approved Persons.
Overview of the Council’s Comments:
The CAC responded to CIRO Bulletin 25-0218, which proposed explicit disgorgement provisions in the Mutual Fund Dealer Rules to harmonize them with existing IDPC Rules. The letter emphasized support for harmonization and timely implementation, while also highlighting persistent concerns about collection effectiveness and investor redress complexity.
- Support for harmonization: The CAC strongly supported the proposed amendments, noting they clarified and harmonized rules across dealer types, making explicit a concept already implicitly recognized.
- Implementation timeline: The CAC welcomed CIRO’s plan to implement amendments in 2026, enabling a timely rollout of the disgorgement distribution program across all member types.
- Collection effectiveness: The CAC reiterated concerns from past comments about IIROC’s historically low collection rate (~13%) on disgorgement orders. It urged CIRO to prioritize disgorgement collection over fines and costs, pursue innovative collection solutions, and provide transparency about collection rates and processes.
- Investor redress landscape: The CAC cautioned that adding another remedy process could complicate an already fragmented system of investor recourse (complaints, arbitration, OBSI, civil courts). Clear communication about the purpose and limits of disgorgement relative to other remedies was deemed essential.
- Transparency and program efficacy: The CAC encouraged CIRO to disclose program costs and effectiveness metrics, and to adopt innovative steps to ensure meaningful outcomes for harmed investors.
The CAC commended CIRO for its steps toward stronger investor protection and regulatory consistency but stressed that success depended on improving collection effectiveness and designing processes that earn investor trust.