With the controls in place at the time, the clients were approved to pursue a trading strategy that resulted in a large volume of trades and exposure to high risk for the clients, more commissions in favour of the investment advisor for these clients, and margin deficiencies in one client’s account.
All in all, the options trading resulted in $272,325 in losses for the four clients, which National Bank compensated, and margin deficiencies in one client’s acount.
IIROC said the bank also had inadequate controls to detect and make prompt corrective measures to trade error transactions. That opened the door for an investment advisor to cancel transactions with respect to 18 accounts between January 2015 and March 2018.
The advisor represented to National Bank that he made trading errors that needed correction, when in fact he sought to artificially boost the performance reflected in client accounts. According to IIROC, the advisor filed 101 purported error corrections over the three-year period, inflating the value of the 18 accounts by $145,885.
National Bank detected the purported corrections, questioned and analysed the transactions, and stepped in to prevent further instances of those deceptions. It has also made investments and spent significant effort to beef up its controls, IIROC said.
