The Investment Industry Regulatory Organization of Canada (IIROC) has ordered Industrial Alliance Securities (IAS) to pay a $75,000 fine as well as $15,000 in costs for having failed to properly train two of its advisors about the risks associated with leveraged exchange-traded funds (LETFs).
On Feb. 9, the regulator announced that its staff and IAS had signed a settlement agreement in which IAS admitted that it "failed to take reasonable measures to ensure that two of its representatives, and some of its supervisors, possessed the required knowledge and understood the features and risks inherent in leveraged exchange-traded funds". IAS also admitted that, in the case of one advisor, it also failed to intervene to ensure that trades executed in the accounts of two clients were within the bounds of good business practice.
"Until spring 2009, LETFs were little-known and the perception of the IAS supervisors was that LETFs worked pretty much like a mutual fund," ruled the IIROC hearing panel. "Reading the prospectuses of the LETFs in question should have raised some questions on the part of the representatives and the supervisors as to the risk of these products. Indeed, the prospectuses of some of these products stated notably that the securities were ‘speculative’, that they involved ‘a high degree of risk’ and that they were only for ‘persons who are able to assume the risk of losing their entire investment’.”
