Your group has been assigned a disciplinary case that either has been or is currently being dealt with by the IIROC. Carefully read all the relevant details of your case.

Refer to all the material that we have studied so far in the CPH course, as well as other relevant information that you learned in previous securities related courses at the college.

Discuss what caused the events described in this case to lead to this disciplinary process.

Identify the IIROC rules that have been violated.

Be sure to discuss how the (alleged) offender should have acted/behaved in their particular situation to avoid the action being taken by the IIROC.

The IIROC disciplinary case that you have been assigned is as follows:

On or around May 23, 2015, client A opened an account with the Investment Dealer ABC Securities Inc., through the Respondent.

Client A is an immediate family member of the Respondent and is a Related Person under the meaning of the Income Tax Act.

Since around April 25, 2015, the Respondent had acted as Power of Attorney for client A, under a general mandate to that effect.

The Respondent did not declare the situation to his employer, either when the account was opened or afterwards.

In no case was ABC Securities informed in a timely manner, nor did it approve this arrangement between the Respondent and client A.

Moreover, the Respondent allegedly proceeded to borrow money from client A, between March and October 2019:

March 27, 2019 $2,000

April 24, 2019 $2,000

June 7, 2019 $1,300

October 18, 2019 $1,000

o Total : $6,300

The Respondent did not declare this situation to his employer. 15. Consequently, ABC Securities was not informed in a timely manner nor did it approve these loans made to the Respondent by client A.

Based on the provided information, the IIROC disciplinary case involves the Respondent, who is an investment dealer at ABC Securities Inc., and their actions with respect to their client, client A, who is an immediate family member and a Related Person under the Income Tax Act. The case involves two main issues:

1. Failure to disclose the relationship and Power of Attorney (POA) status: The Respondent did not disclose the fact that client A was their immediate family member and a Related Person under the Income Tax Act. Additionally, the Respondent acted as a Power of Attorney for client A without informing ABC Securities Inc. about this arrangement. The failure to disclose such a significant relationship and POA status creates a potential conflict of interest and raises concerns about the fiduciary duty owed to the client and the firm.
2. Borrowing money from the client without disclosure: The Respondent allegedly borrowed money from client A on multiple occasions between March and October 2019, amounting to a total of $6,300. The Respondent again failed to disclose these loans to ABC Securities Inc. This conduct raises serious ethical concerns as it can compromise the Respondent's ability to provide objective and unbiased advice to the client. Borrowing money from a client can create a conflict of interest, and not disclosing such loans to the employer further exacerbates the issue.

IIROC Rules Violations:

1. IIROC Universal Market Integrity Rules (UMIR) - Rule 29.1 (Duty of Loyalty): This rule states that an Approved Person (the Respondent, in this case) must act honestly and in good faith and must exercise the utmost care, diligence, and skill in fulfilling their duties. The Respondent's failure to disclose the relationship with client A, as well as the POA status, goes against the duty of loyalty and raises concerns about potential conflicts of interest.
2. IIROC Dealer Member Rule 18.14 (Disclosure of Conflicts): This rule requires investment dealers to disclose any conflicts of interest that may arise in the course of dealing with clients. The Respondent's failure to disclose the loans received from client A constitutes a conflict of interest that should have been disclosed promptly to ABC Securities Inc.
3. IIROC Dealer Member Rule 29 (Borrowing and Lending from Clients): This rule addresses borrowing and lending money between Approved Persons and clients. The Respondent's borrowing of money from client A violates this rule, which is designed to protect clients from undue financial influence and potential harm.

How the Respondent should have acted to avoid disciplinary action by IIROC:

1. Full Disclosure: The Respondent should have disclosed the relationship with client A and the POA status to ABC Securities Inc. at the time of account opening. Any changes in the relationship, such as the appointment as Power of Attorney, should have also been promptly disclosed to the firm.
2. Obtaining Consent: The Respondent should have sought prior approval from ABC Securities Inc. before acting as Power of Attorney for client A. Additionally, before borrowing money from the client, the Respondent should have obtained explicit consent from the firm and ensured compliance with IIROC rules on borrowing and lending from clients.
3. Avoiding Conflicts of Interest: The Respondent should have taken steps to ensure that their personal relationship with client A did not interfere with their ability to provide unbiased advice and act in the best interest of the client. If any conflicts of interest arose, they should have been disclosed and managed appropriately.
4. Complying with IIROC Rules: The Respondent should have familiarized themselves with IIROC's rules and regulations and followed them diligently to avoid any violations and potential disciplinary actions.

By adhering to these best practices and ethical standards, the Respondent could have avoided the disciplinary process initiated by IIROC. It is crucial for investment professionals to act with transparency, honesty, and integrity to maintain the trust of their clients and their employer while upholding regulatory requirements.

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