Poor Organizational Structure and Officer Liability
Jean-François Hamel, C.I.B., CRM, Syndic
After having conducted a number of investigations into the actions of representatives attached to the same firm, the Syndic’s Office noted that the firm’s managers had potentially committed several acts of ethical misconduct specifically related to their managerial responsibilities. Consequently, the Syndic’s Office opened an investigation file.
In a nutshell, the firm had attached brokers who worked off-site and who had signed agreements to essentially bring in new business as “affiliated” brokers. The firm also provided off-site administrative support services.
The investigation revealed that the firm’s officers had not fully met their responsibility to comply with the legislation and regulations governing the structure and operation of the firm. Two joint formal complaints1 were filed before the Discipline Committee against the firm’s president and vice-president. They were alleged to have committed the following acts:
- not having established procedures to ensure that the “affiliated” brokers’ certificates to practice were in force and that they were entitled to pursue activities;
- not having provided for the proper management of monies collected by the “affiliated” brokers from insureds. In particular, the system did not give the “affiliated” brokers access to the separate account so that they could immediately deposit cash insureds had given them to pay for their insurance premiums. The respondents had even allowed the “affiliated” brokers to deposit money collected in their own personal accounts and then send a cheque to the firm;
- having allowed insurers to pay commissions directly to the “affiliated” brokers, in contravention of section 24 of the Act respecting the distribution of financial products and services (ARDFPS), which states that “no representative may receive an amount deriving from a sharing of commissions except through a firm or independent partnership for which the representative acts.” The firm was supposed to pay the “affiliated” brokers their commissions, rather than having the insurers do so directly;
- not having given the “affiliated” brokers access to a computerized client-record management system, and simply letting them record client information on the insurers’ portals. In the absence of complete records at the firm’s official head office, the firm could neither oversee nor follow up on the activities of its “affiliated” brokers.
THE DISCIPLINARY RULINGS
As damage insurance brokers and firm officers, the respondents were responsible for ensuring that their “affiliated” brokers complied with the ARDFPS and its regulations. Having failed to fulfill their responsibilities, the Discipline Committee found the respondents guilty of all charges except those concerning two attached representatives who had been slightly late in renewing their certificates.
The sanctions hearing before the Discipline Committee will take place in March 2015.
In conclusion, before setting up any new organizational structure, it is important that the officer read the legislation and regulations in order to guarantee the firm’s compliance. Furthermore, one should keep in mind that the ARDFPS always takes precedence over any contractual agreement.
AUTHORITY OF THE DISCIPLINE COMMITTEE OVER HEARING AND DECIDING ON DISCIPLINARY COMPLAINTS AGAINST CERTIFIED FIRM OFFICERS
At the disciplinary hearing, the defence argued that the administrative penalties the Autorité des marchés financiers (the AMF) and the le Bureau de décision et de révision could impose might overlap with the administrative sanctions imposed by the Discipline Committee.
The Committee formulated its decision as follows:
1. Chambre de l’assurance de dommages v. Ouellet, 2014 CanLII 49263 (QC CDCHAD).
2. Op. cit., para. 53 and following.