Desjardins Financial Services Firm (DFSF) has been ordered to pay an administrative penalty of $1 million (M), the Autorité des marchés financiers announced on Jan. 12.
The Desjardins Group subsidiary is being penalized for having put in place an incentive compensation structure that favoured the sale of Desjardins funds over other funds. It thus contravened two sections of Regulation 81-105 respecting Mutual Fund Sales Practices, the AMF says.
The incentive compensation plan in question was in effect from 2009 to 2016. “Participation in the plan was mandatory for representatives during 2016 only, it being optional in the preceding years,” the AMF points out.
The regulator also found that DFSF failed to monitor compliance and manage risk as required under section 11.1 of the Regulation 31-103 respecting Registration Requirements, Exemptions and Ongoing Registrant Obligations.
“From 2009 to 2015, when application of the incentive compensation plan was optional, DFSF failed to keep the legally required remuneration registers with respect to bonuses paid under the plan. By not keeping such registers, including the identities of representatives under the plan, DFSF failed in its obligation to monitor compliance and manage potential conflicts of interest resulting from the incentive compensation,” the regulator says.
Agreement ratified by the Tribunal
DFSF has admitted to all the alleged facts and failures. It also reached an agreement with the Authority to determine the penalty. The Financial Markets Administrative Tribunal approved the agreement on January 11.
“In its decision, the Tribunal stated, among other things, that ‘the business practices and compensation arrangements prohibited by Regulation 81-105 undermine, compromise or conflict with the fundamental obligations of industry participants to their investor clients. This includes, in particular, the primary obligation of dealers and their representatives to act in the best interests of clients and the obligation of dealers to exercise adequate and appropriate supervision of their representatives who deal with clients to ensure compliance with all statutory and other legal obligations,” the AMF reports.