Administrative penalty imposed on Desjardins Financial Services Firm

Decisions and Freeze and cease trade orders Deposit institutions

Montréal – On January 11, 2021, the Financial Markets Administrative Tribunal (Tribunal) rendered a decision approving the agreement entered into between the Autorité des marchés financiers (AMF) and Desjardins Financial Services Firm (DFSF) (the “Agreement”) and gave effect to the proposed order imposing an administrative penalty of $1 million on DFSF.

The Agreement follows an AMF investigation that revealed that DFSF had instituted an incentive compensation structure that contravened sections 4.1 and 4.2 of Regulation 81‑105 respecting Mutual Fund Sales Practices (Regulation 81-105). The structure adopted by DFSF favoured the sale of Desjardins funds over non-Desjardins funds. The incentive compensation plan 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 also found that DFSF had failed to monitor compliance and manage risks as required under section 11.1 of 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.

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.”

As part of the Agreement, Desjardins admitted to all the alleged facts and failures.

The Autorité des marchés financiers is the regulatory and oversight body for Québec's financial sector.

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