IN THE MATTER OF THE BYLAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA. - and- UNION SECURITIES LTD. (RESPONDENT)

Transcription

1 IN THE MATTER OF THE BYLAWS OF THE INVESTMENT DEALERS ASSOCIATION OF CANADA - and- UNION SECURITIES LTD. (RESPONDENT) Hearing Panel Stephen D. Gill, Chair Don Teatro, Member James Harkness, Member Appearing for the IDA Paul Smith Lorne Herlin Heard: July 19 and 22, 2005 at Vancouver, BC

2 - 2 - INTRODUCTION 1. The Investment Dealers Association of Canada (the Association ) applies, pursuant to Rule 16 and 17 of the Rules of Practice and Procedure of the Association, and Bylaws 20.41, 20.42, and of the Association, for an Order, upon terms, for the imposition of a Monitor for a Member, Union Securities Ltd. ( Union ). The panel was advised by counsel for the Association that these were Expedited Proceedings, and that Rule 16.5(5) provides The Notice of Application is not required to be served on the Respondent., and that the Association did not intend to serve Union with the Application. 2. The Notice of Application (Exhibit 1) set out fully the terms and conditions of the Order being sought. In support, counsel for the Association tendered the Affidavit of Guenther Kleberg sworn July 15, 2005 (Exhibit 2); the Affidavit of Natalija Popovic sworn July 18, 2005 (Exhibit 3); the Affidavit of Stuart J. Bartley #1 sworn July 15, 2005 (Exhibit 4); the Affidavit of Stuart J. Bartley #2 sworn July 18, 2005 (Exhibit 5); the Affidavit of Warren Funt #1 sworn July 18, 2005 in two volumes (Exhibit 6A and 6B); the Affidavit of Stewart J. Bartley #3 sworn July 21, 2005 (Exhibit 7). 3. At the conclusion of the Hearing, having considered all of the evidence, the Panel was satisfied that the Association had made out a strong case for the appointment of a Monitor, and on July 25, 2005 granted the Order which has been published. Reasons were to follow and these are those reasons.

3 - 3 - FACTS AND ANALYSIS 4. By-law provides for expedited hearings: (1) Expedited hearings are held upon application by Association Staff and without notice to the Respondent in the circumstances prescribed in By-law and By-law By-law 20.42, dealing with Members, provides: (1) A Hearing Panel may impose any of the penalties prescribed by By-law upon a Member in any of the following circumstances: Counsel for the Association made their Application pursuant to By-law (1)(d) which provides: where a Member is in such operating difficulty that the Hearing Panel determines the Member cannot be permitted to continue to operate without risk of imminent harm to the public, other Members or the Association; 7. By-law sets out the powers of a Hearing Panel namely: (1)A Hearing Panel has the power to impose any of the following penalties upon a Respondent who is an Approved Person or Member in the circumstances prescribed in By-law and Bylaw 20.43: (h) imposition of a Monitor pursuant to By-law By-law describes the powers of Hearing Panel to impose a Monitor as follows: (1) A Hearing Panel may order the imposition of a Monitor, on such terms and conditions as it deems just and appropriate, where it is in the interest of the public, and the Hearing Panel determines that:

4 - 4 - (b) client accounts are at risk of financial loss due to a Member s financial condition, inadequate internal controls or deficient operating procedures; (2) A Monitor appointed pursuant to subsection (1) shall monitor the Member s business and financial affairs in accordance with the terms and conditions specified by the Hearing Panel. 9. By-law (3) sets out the terms and conditions that the Hearing Panel may assign to the Monitor, for such period of time as the Hearing Panel determines is just and appropriate in the circumstances, and includes: (i) any other such terms or conditions that the Hearing Panel determines is just and appropriate to assign to the Monitor. 10. The Association, in its Notice of Application, set out the terms and conditions for the Monitor that they were requesting in paragraphs 1 to 7 of the Notice of Application. 11. The Notice of Application set out the grounds for the Application as follows: (1) Union is in such operating difficulty that continuing to operate without the appointment of a Monitor would risk imminent harm to the public, other Members of the Association, and/or the Association for the following reasons: (a) the latest Sales Compliance Review (SCR) conducted by the Association identified a pervasive failure of Union s compliance systems; (b) Union, its employees, and its clients have been the subjects of a number of enforcement proceedings and warnings; (d) Union s Board of Directors and management have not demonstrated a willingness and/or ability to effectively address problems in Union s compliance systems;

5 - 5 - (e) Union has failed to fulfill undertakings given to correct deficiencies in its compliance systems following previous SCRs; (f) swift, corrective action to Union s compliance systems is in the public interest because, among other things, client accounts are at risk of financial loss due Union s inadequate internal controls and/or deficient operating procedures; 12. The Affidavit of Warren Funt #1 sworn July 18, 2005, was tendered in support of the Application; as well Mr. Funt testified before the Panel. Mr. Funt is the Vice-President, Western Canada, Member Regulation, of the Association. He is responsible for all of the member regulation activities, registration, sales compliance, financial compliance and enforcement, west of the Ontario/Manitoba border. Mr. Funt has been a regulator in different roles in Vancouver for 15 years, and in the securities industry for 28 years. For the past 4 years, in his current role, he reviews all of the Sales Compliance Reviews ( SCRs ), and financial reviews, for the approximately 40 western based members firms, including Union. 13. Mr. Funt states that from time to time Association staff review the sales compliance procedures, policies and practices of member firms. These reviews are conducted by sales compliance officers employed by the Association (sales compliance staff). The purpose of the SCRs is to identify, for the Member, any problems or concerns related to the Member s sales compliance systems or the implementation or operation of those systems. 14. After the SCR has been planned, and the documents to review have been identified, sales compliance officers attend at the Member s business premises to conduct the review. Field work for the review can take anywhere from a few days to a few weeks to complete. In the course of the review, the sales

6 - 6 - compliance officers will review the documents requested, and interview key compliance personnel such as the Ultimate Designated Person and the Chief Compliance Officer. If, after the review, problems or concerns are identified, sales compliance staff will set up requirements to effect changes necessary for the Member to become compliant with the Association By-laws, Regulations or Policies or the requirements of any Federal or Provincial law or regulation. Sales compliance staff will also make recommendations for improvements that are not mandatory. Those requirements or recommendations are contained in a Sales Compliance Review report (SCR report) that is provided to the Member, first in draft form, and later in the final form approved by Mr. Funt. 15. According to Mr. Funt, sales compliance staff often has an ongoing dialogue with Member firms to resolve the issues and concerns identified by the SCRs. In most cases, any issues or concerns raised by the sales compliance staff in a review are remedied by the time that any subsequent sales compliance review takes place. If they are not, the issue of concern is identified as a repeat item in the subsequent SCR report. 16. Union Securities Ltd. has been a Member of the Association since Its head office is in Vancouver, BC and it has branches throughout Canada. According to Mr. Funt, traditionally Union s business has been relatively highrisk. The firm s original roots were trading and financing Vancouver Stock Exchange ( VSE ) and Alberta Stock Exchange ( ASE ) companies. They then followed some of that business to the U.S. OTCBB. According to Mr. Funt, Union has now diversified geographically, and by business lines, but is still involved in high-risk business be it TSX Venture, OTCBB, Futures, short selling, and has a disproportionate number of non-canadian accounts.

7 According to Mr. Funt, in 1998 the VSE required Union to undertake an independent review of its internal controls as part of its settlement for failing to diligently supervise the client accounts of 3 registered representatives. Mr. Funt was also directly involved in the B.C. Security Commission s plan to place terms and conditions on Union s registration in Union came under the audit jurisdiction of the Association after Member regulation was transferred from CDNX in Association staff have conducted 4 head office SCR s of Union namely in 2000, 2001, 2003 and Mr. Funt states in his Affidavit: 17. Based on its background, my experience in the industry and the results of the four SCRs, it appears to me that Union has deep rooted, historical and persistent compliance failures that don t seem to be remedied by our conventional methods. (Exhibit 6A, p. 3) 19. Sales compliance officers of the Association carried out Union s 2005 SCR in February The SCRs conducted at Union are described in the Affidavit of Stuart J. Bartley #1 (Exhibit 4). Mr. Bartley was responsible for assigning, instructing and overseeing the sales compliance staff who conducted the 2001, 2003 and 2005 SCRs of the Vancouver head office of Union. He also oversaw and participated in the drafting of those 3 SCRs. The 2000, 2001 and 2003 SCR reports, along with Union s replies thereto, are attached to Mr. Bartley s Affidavit # In preparation for the 2005 sales compliance review, the Association s sales compliance staff conducted a risk assessment of Union s operation. As explained in Mr. Bartley s Affidavit #1, the risk assessment is part of the normal process followed by Association sales compliance staff and is intended

8 - 8 - to help identify special areas of risk that they should be aware of when they conduct a review of a Member s sales compliance systems and practices. 21. At paragraph 14 of his Affidavit #1, Mr. Bartley indicated the information that was reviewed as part of the risk assessment process, and in paragraph 15 indicated the Association also made inquiries. Based upon their inquiries, they assigned a risk rating to Union of 3.3 on a scale where 1 indicates very little risk and 5 indicates a very high risk. Mr. Bartley states that if a Member firm is assigned a risk rating of 3 or more, then Association sales compliance staff conducts a full sales compliance review of that Member. This was done for Union in Mr. Funt states that higher-risk business requires strong compliance systems. 22. Further, Mr. Bartley states (Affidavit #1), that based on staff s findings from the 2005 SCR of Union, the Association assessed the risk at The review of Union s sales compliance systems and practices commenced on February 7, 2005 and ended on April 28, Documents were requested from and provided by Union both prior to and during the SCR. In addition to reviewing documentation, Association sales compliance staff also spoke to a number of Union personnel, including the Chief Executive Officer and Ultimate Designated Person; the senior Vice-President of Compliance; the senior Vice-President of Credit and Chief Administrative Officer; the Vice- President of Finance; the Vice-President of Corporate Finance; Senior Vice- President of Futures Compliance; etc. (Bartley Affidavit #1, para. 24). On April 4, 2005 Martin Lang became the Chief Compliance Officer, and the Alternate Designated Person of Union.

9 The Union pre-exit meeting was held on April 28, Two of the Association s senior sales compliance officers met with Martin Lang, and Kevin Dire (Designated Registered Futures Options Principal) to discuss some of the findings from the 2005 Sales Compliance Review. On June 22, 2005, the Association sent Union the draft 2005 SCR report. The Association requested that Union provide the Association with a list of any concerns that they had regarding the draft Review by June 29, Union made 2 requests for an extension for Union s reply, firstly to July 8, 2005 and secondly to July 15, The 2005 SCR is Exhibit 18 to the Bartley Affidavit #1. In the Executive Summary of the SCR, staff noted significant items which the Member must address and resolve, and 9 repeat deficiencies or repeat of significant items; the Executive Summary is attached hereto as Appendix A. The Executive Summary states: We are alarmed by the number of findings, the severity of the findings, and the number of repeat findings. Parts or all of the Review will be forwarded to Enforcement for further investigation and we will consider placing terms and conditions on the firm s registration. We expect the Member to take strong steps immediately to improve the Member s compliance systems. 26. At the Hearing, counsel for the Association spent considerable time taking the Panel through various documents, attached to the various Affidavits, which demonstrated that Union had, in the past, made commitments to the Association to remedy and correct deficiencies or significant items, but had failed to carry out those assurances. The Panel requested Association counsel provide specific references to a number of the findings in the 2005 SCR for which Union had previously acknowledged compliance deficiencies and had made a commitment to improve, which had not been carried out. Association

10 counsel provided the requested references, and a copy is attached hereto as Appendix B. 27. A review of the 2005 SCR demonstrates that Union had many repeat deficiencies and repeat significant items. Further, they appear to cover a whole range of items, and are not simply a breakdown in one area. Mr. Funt, with his 28 years experience in the securities industry, and in a regulator s role for 15 years, states that in June 2005 he received a draft of the 2005 SCR report. He states: 21. From reading the 2005 Draft SCR Report, and given the context in which the 2005 SCR was carried out, I have come to the conclusion that there has been such a pervasive failure of its operating procedures and sales compliance systems that Union cannot continue to operate in the same manner without risk of imminent harm to the public, other Members, or the Association. 22. The problems identified in the 2005 Draft SCR Report and described in this Affidavit are indicative of the extent and scope of this failure. 23. There are 36 findings in total of which there are 14 findings repeated from the previous review, and 9 of the 14 were repeated and significant. There were 2 new significant findings. The absolute number of findings is a concern, but of greater concern is the number of repeat findings. It is expected that when a firm is told to address a problem, and they accept our position, that they will do so. (Funt Affidavit #1) (emph. added) 28. Mr. Funt, in his Affidavit #1, gives a great deal of detail as to Union s deficiencies and repeat deficiencies. He states there is no effective supervision of client account activity: see paragraphs of Funt Affidavit # For example, Mr. Funt noted that the SCR reported that Union s branch dailies were not timely, and apparently they were altered and back-dated. Some

11 reports were not faxed from head office for as many as 60 days after the report was produced. In some cases, the dates initialled by the reviewer were prior to the date that reports were received in the branch. In other cases the review dates appeared to be altered to indicate the reviews were completed by the next business day. Mr. Funt states: This appears to create a false audit trail by the supervisory personnel who are entrusted to ensure the integrity of the firm. (Funt Affidavit #1, paras ) 30. Mr. Funt further testified that a number of these supervision issues were found in the previous SCRs, and Union represented to the Association that they had taken action to improve their compliance. Notwithstanding assurances that Union would respond, Mr. Funt states that it is clear that the efforts by Union were not effective, and that Union s self-directed efforts to deal with their poor compliance record on supervision issues has failed. 31. Mr. Funt states: 47. Many of the problems identified above are potentially very serious and would have been caught by a functional and effective account supervision system. Given the number and type of problems that were detected from the very limited sample of accounts reviewed by the Sales Compliance Officers, I believe that many other Union client accounts may be in jeopardy and the markets may be at risk given Union s lack of supervision over client trading. (Funt Affidavit #1) 32. Mr. Funt states that the 2005 SCR demonstrates that there are insufficient or ineffective functioning internal controls at Union to prevent regulatory violation. He states, The report sites examples of both registrants and accounts that were restricted from trading but still traded. This is of particular concern because it demonstrates an inability for compliance staff

12 to control sales, even when they decide to act. The ability of any Member to prevent a restricted registrant or account from trading is a very basic type of control. The fact that even such a basic control is ineffective at Union is another indication of the pervasive nature of the failure in Union s compliance controls. 33. Mr. Funt details the lack of internal controls in paras. 48 to 60 of his Affidavit # Mr. Funt also demonstrates that Union has significant documentary deficiencies. See paragraphs 61 to 70 of Mr. Funt s Affidavit # Mr. Funt also sets forth that Union has been attracting undesirable U.S. business, and not complying with the required procedures. See paras. 71 to 77 of his Affidavit # Mr. Funt further states that it appears Union has no effective compliance system to deter money laundering and terrorist financing. Thirty-three of the ninety accounts reviewed for identity verification procedures for anti-money laundering purposes were deficient. There was no improvement in the deficiency rate from the 2003 SCR notwithstanding Union s commitment that it was rigorously enforcing the revised ID verification policy developed in Eleven of the deficient accounts originate from off-shore jurisdictions: see Funt Affidavit #1, paras Mr. Funt went on to describe how Union was on notice of the potential pitfalls of non-compliance regarding U.S. business and anti-money laundering standards: see paras of Mr. Funt s Affidavit # Mr. Funt went on to describe that Union is on notice of the potential pitfalls of non-compliance regarding U.S. business and anti-money laundering standards

13 in that Union, and its registrants, have been subject to regulatory and criminal investigations and prosecutions in the United States, and that accounts at Union have been used to conduct manipulative trading, money laundering, and serious frauds against securities markets. Mr. Funt describes a number of instances in which Union, its employees and/or its clients have been subject to regulatory and/or court proceedings due to misconduct. Mr. Funt details stock exchange disciplinary proceedings from May 1994 to January 2001 (paras of Funt Affidavit #1) and U.S. criminal proceedings (paras of Funt Affidavit #1) and proceedings initiated by the U.S. Securities Commission (paras of Funt Affidavit #1). Further, Mr. Funt describes various B.C. Securities Commission actions (paras of Funt Affidavit #1) and enforcement proceedings by the Association including the fact that there are currently 7 active enforcement matters which name either Union or one of its RR s as the subject of the investigation (paras of Funt Affidavit #1). 39. Mr. Funt states that in his opinion, supervisory personnel at Union should be aware of the foregoing proceedings, as well as the ongoing inquiries from authorities in the United States. It is his belief that these proceedings and ongoing inquiries would have encouraged Union to adopt more rigorous compliance standards. However, he states: The 2005 SCR confirmed to me that they have not and I have concluded that Union will not adopt new standards of compliance without decisive action on the part of the Association. 40. Mr. Funt went on to state: 125. It is clear that Union has failed to take appropriate remedial steps to address problems that had been identified in previous

14 SCRs and has failed to fulfill certain undertakings to the Association to correct those problems The fact that these issues are not resolved leads me to conclude that I cannot rely on Union s continued assurances that their compliance regime will improve I saw Union s response to the 2005 Draft Report for the first time in the evening on Sunday, July 17, There are some factual changes that we may incorporate into the final review, as is the normal audit process. I do not see anything in Union s response which changes any of the conclusions made by me throughout this Affidavit. (emph. added) 41. Mr. Funt states that normally the Sales Compliance Review process results in the Member addressing the concerns and issues that have been raised, and correcting the deficiencies. He considered permitting the remedial process to go forward, but rejected this approach because I believe the immediate risk is too great. Also, Union has had many chances to improve and has chosen not to. (Funt Affidavit #1, para. 129) 42. Mr. Funt states that in his opinion, employing the usual remedial processes of the SCR will not effectively or quickly achieve the goal of making Union compliant with the applicable requirements, because Union requires an indepth review and overhaul of its existing sales compliance systems. In his opinion, the SCR remedial process is not capable of dealing with a systemic breakdown of a Member s sales compliance system, which is the case with Union. He states: As a result of having dysfunctional sales compliance systems, there is a significant risk of imminent harm to the public, Union s clients and to Union itself. In the circumstances, swift corrective action is necessary. (Funt Affidavit #1, para. 132) (emph. added)

15 In Mr.Funt s opinion, given the extent of the breakdown in Union s sales compliance systems, it is necessary to evaluate those systems, at an in-depth level, to determine why they are not working properly. It will then be necessary to determine how they can be corrected, or, if they cannot be corrected, what should replace them. It will also be necessary to consider issues such as whether or not Union has enough resources dedicated to compliance, whether or not those conducting the supervisory reviews have appropriate training and skills, and whether or not sales staff is being responsive to inquiries made by compliance staff. 44. Mr. Funt states that he has no confidence that Union s Board of Directors or Management is either willing or able to conduct a compliance review by itself, and make the necessary changes in a timely manner. He points out that Union has given undertakings in the past, to correct matters, but they have failed to fulfill those undertakings. Union s Board of Directors and Management have allowed Union s sales compliance systems to slide into an unacceptable and non-compliant state. 45. Mr. Funt states in paragraph 143 of his Affidavit #1: if Union continues to conduct business under its current culture of non-compliance, there is a risk of imminent harm to both investors and the capital markets. To be more specific, if a Monitor is not put in place, there will likely be at some point, perhaps not tomorrow, but eventually, a matter such as a market manipulation involving Union RRs. It is equally likely that an individual Union RR will harm clients through inappropriate trading without the matter being detected in any reasonable time by Union compliance staff. The Association has made every effort to effect necessary change at Union through co-operative means. All have failed. It is now imperative that these measures be taken to protect investors and the capital market. (Funt Affidavit #1, para. 143)

16 Mr. Funt states that an independent Monitor is the most effective way of ensuring that Union will quickly implement appropriate sales compliance systems. 47. In support of the Application the Association submitted the Affidavit of Guenther Kleberg sworn July 15, 2005 (Exhibit 2). Mr. Kleberg was employed in the Canadian Securities industry from 1967 to In 1982 he became a fellow of the Canadian Securities Institute. From 1956 to 1964 he worked in the banking industry, predominantly in securities related areas, in Germany, Switzerland and France. His experience in the Canadian securities industry includes acting in the capacity of V.P. & Head Of Compliance of CIBC Wealth Management ( ); acting as Chief Compliance Officer, (CCO), Designate Registered Options Principal (DROP); Designated Registered Futures Principal (DFRP), at CIBC World Markets Inc. ( ); acting as CCO at CIBC Securites Inc. ( ); and acting as Manager of Compliance, DROP, and DRFP at Merrill Lynch Canada Inc. ( ). Currently, Mr. Kleberg provides consulting services in respect of Canadian Securities regulatory matters. 48. Mr. Kleberg has also been a member of one or more industry hearing committees since In addition to his work experience as aforesaid, he has been a member of the Joint Industry Compliance Group and currently is a member of the hearing committees of RS Inc. (formerly the TSX), the IDA and MFDA. (Kleberg Affidavit, paras. 1 4) 49. Mr. Kleberg states that he is familiar with the Sales Compliance Review process of the Association, and that the SCR process is critical to assessment of, and assistance with, ensuring the underlying health of a firm s compliance

17 program. He notes the Association has conducted 4 SCRs of Union for the years 2000, 2001, 2003 and 2005, and that he has reviewed these SCRs, together with Union s responses thereto. He comments on Union s response to the 2005 SCR in his letter of July 18, 2005; their response did not change his opinion. (See the Affidavit of Popovic, Exhibit 3) 50. Mr. Kleberg states his conclusions with respect to Union, and their compliance system, as follows: 8. From reviewing the SCRs I have come to the conclusion that there is a pattern of willful or negligent non-compliance with Association rules and regulations on the part of Union. The problems described below, which are identified in the SCRs, are indicative of an alarming trend of repeated compliance deficiencies over successive years. Without corrective action there is, in my view, imminent financial risk to Union and Union s clients and future clients, as well as reputational risk to the entire industry. 9. In my view the management at Union is merely paying lip service to the compliance issues raised by the Association. I have come to the conclusion that there is no evidence of proper internal controls or systems indicating a commitment, on the part of Union, to fostering a culture of compliance with Association rules and regulations. (Kleberg Affidavit, paras. 8 and 9) (emph. added) 51. Mr. Kleberg, gives general and specific comments with respect to his review of the 4 SCRs conducted of Union. He prepared a spreadsheet, which is attached to his Affidavit, which shows the issues highlighted by the Association. He notes there was a steady increase of repeat findings and of significant priority items. He concludes that Union does not follow through on the requirement to effect the addressed issues highlighted in the SCRs. 52. Mr. Kleberg also comments upon the compliance infrastructure at Union; the lack of effective supervision of client account activity; and the lack of

18 employee supervision (Kleberg Affidavit, paras ). Mr. Kleberg concludes that there has been an increase in deficiencies reported by the Association since the 2000 SCR, and that the inordinate high rates of deficiency at Union are reflective of a breakdown of compliance at Union. Without a correction of the deficiencies, Union could be financially exposed to client claims, regulatory fines and/or suspensions and restrictions. He states: 23. In my view, Union s client accounts are at risk of financial loss due to Union s inadequate controls and deficient operating procedures. Remedial action must be taken to bring Union in line with Association s rules and regulations and industry standards. If such action is not taken I believe there is a risk of imminent harm to Union s clients, the public and other Members. (Kleberg Affidavit, para. 23) (emph. added) 53. Like Mr. Funt, Mr. Kleberg states that in his opinion it is most appropriate that an independent compliance Monitor be appointed for Union. In his view, an independent compliance Monitor would be able to advise Union s Board of Directors what needs to be done, and how it should be done. The compliance Monitor, being independent from the Board of Directors, could make recommendations and advise on implementing changes free of internal conflict with Union staff. Mr. Kleberg also has a number of other comments and suggestions as to how Union can make the changes or implement changes to become compliant. 54. Union, in its July 15, 2005 response to the 2005 SCR, states it has appointed a new Chief Compliance Officer, Mr. Martin Lang. They state that Mr. Lang is a CA, and a former examiner of the VSC, and is the kind of detail oriented, knowledgeable and reliable person that the CCO must be. (Exhibit 1 of Bartley Affidavit #2)

19 CONCLUSIONS AND ORDER 55. At the outset of the Hearing, this panel was not comfortable that the Application should proceed without notice to Union. However, having heard submissions, and carefully considered all the evidence submitted by the Association, we accept that it was appropriate to proceed without notice. 56. Further, we are satisfied on all of the evidence, that the Association has made out a strong case for the appointment of a Monitor with respect to the compliance systems at Union, and has met the appropriate tests set out in the Rules and By-laws. Accordingly, the Order is granted in the terms approved by the Panel. 57. We anticipate that the new CCO, Mr. Lang, and the compliance Monitor will work together closely to accomplish compliance by Union. To that end, the panel has carefully reviewed the proposed terms and conditions of the Monitor, and has stipulated the terms and conditions. For example, the compliance Monitor is directed that within 30 days of the Order, he is to provide a report of his findings, observations and recommendations to Union s Board of Directors and to Association staff, the said report to specifically address whether business conducted following the issuance of the Order has complied with all Association By-laws, Regulations, Rulings and Policies. Based upon the evidence, Union s compliance systems have to improve significantly, and have to do so very quickly. In our view, there is no reason why new business cannot comply with the Association Rules and Regulations. We trust that the terms of the Order will convey the sense of urgency the Panel has about this matter, and the need to address all the deficiencies.

20 Similarly, in our view, if the compliance Monitor receives the full co-operation of Union, it is possible that he will be able to complete his task in 90 days. This may be somewhat optimistic, but again, in our view, there is a great deal of urgency here and drastic action is called for. However, if necessary, the Association can apply to extend the term of the compliance Monitor. 59. During this application, we noted that Rule 17.4(1)(b) and (c) refer to a roster of eligible Monitors, and a fee schedule. We were advised by counsel that there is no roster of eligible Members, (Schedule B), and no fee schedule (Tariff A). We trust the Association will address those matters forthwith, but as none are in existence at the time of this Application, we have added terms and conditions to the Order to address what in our view may be some concerns by Union. We did have the benefit of testimony from Mr. Funt with respect to the Monitor, and we are confident that the Monitor we have appointed will be able to carry out the appointed tasks, if he receives full and complete cooperation from Union, and particularly its senior management. 60. However, this is, to our knowledge, the first time a Monitor has been appointed pursuant to an Application by the Association, in these circumstances. We have, therefore, included as a term of the Order, leave to Association staff or Union to apply to the Hearing Panel for directions regarding any terms and conditions of the Order. 61. These reasons may be signed in counterparts. DATED this 29th, day of July, 2005

21 Stephen D. Gill, Chair Don Teatro, Member James Harkness, Member

22 APPENDIX A

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24 APPENDIX B

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26 Lib2: