A hearing panel of the Investment Industry Regulatory Organization of Canada (IIROC) has accepted a Settlement Agreement, with sanctions, between IIROC staff and National Bank Direct Brokerage Inc. (NBDB).

With this agreement, NBDB admits it failed in its duty to provide supervision and maintain adequate internal controls regarding one of its registered employees. The firm also admits that it failed to maintain proper records and continued the registration of its Chief Compliance Officer with the regulatory authorities although this person was no longer employed with NBDB.

NBDB agrees to a $75,000 fine, and to pay $25,000 in costs.

Specifically, NBDB admits that it:

(a) failed in its duty to provide supervision and in its duty to establish and maintain adequate internal controls, contrary to IIROC Rules 17.2A, 29.27, 1300.2, 2500 and 2700, when it allowed its representative Thi Sen Chher:

(i) to obtain a proxy for the brokerage accounts of a member of his family, without registering these accounts as Pro accounts or ensuring that they were registered as such;

(ii) to make additions, without supervision or verification, to that client’s mailing address and investment profile without their authorization; and

(iii) to self-approve transfers of funds, without supervision or verification, between his personal accounts and those of that client, a member of his family, without the client’s consent or approval.

(b) failed to keep adequate records, contrary to IIROC Rules 17.2, 200 and 2500, section D , particularly:

(i) the keeping of physical acknowledgements confirming the receipt, reading and understanding of the 2005 Compliance Manual by the employees of NBDB.

(c) engaged in conduct unbecoming by continuing the registration of its Chief Compliance Officer with the regulatory authorities even though this person was no longer in the employ of NBDB, thereby contravening the provisions of IDA By-law 38.12 (now IIROC Rule 38), and IDA Policy number 6 (now IIROC Rule 2900) and Policy number 8 (now IIROC Rule 3100).

The violations occurred between November 2002 and May 2007. IIROC (then Investment Dealers Association of Canada (IDA)) began its formal investigation into NBDB’s conduct on October 24, 2007, after the firm reported the situation to the IDA. NBDB is an IIROC-regulated firm.