New SRO – Proposal on Distributing Funds through the New SRO

May 1, 2023

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New SRO – Proposal on Distributing Funds through the New SRO

Letter Summary:

The proposal relates to the current inability of the New SRO to release disgorged funds to investors that have suffered a loss, even if a disciplinary proceeding has ordered disgorgement. Disgorgement aims to ensure that respondents, who are found to be liable for breaching regulatory requirements, do not keep any funds they had obtained (e.g. incorrect fees), or benefit from losses avoided, as a result of their contravention. Based on an internal working group recommendation, the New SRO proposes to enhance its existing enforcement process (which already includes disgorgement and collection) to add a mechanism to distribute these funds to harmed investors. Under the proposal, an eligible investor would be a person who suffered direct financial loss because of the contravention giving rise to the disgorgement directly linked to the enforcement findings. A potential class of investors would be identified at the investigation stage. Once the enforcement process is complete and funds are disgorged and collected, notice would be provided to all known eligible investors, and claimants would need to opt in within a prescribed time frame and declare any recovery obtained elsewhere. Claims for payment would be made and assessed by a separate branch of the New SRO. Harmed investors would not be prevented from bringing civil claims or seeking compensation elsewhere for loses arising from the same conduct. Specific questions posed relate to the proposed restraints on eligibility and the potential for investor confusion with respect to their redress options.

Overview of the Council’s Comments: