On February 21, 2024, a hearing panel of the Canadian Investment Regulatory Organization (CIRO) held a hearing under the Investment Dealer and Partially Consolidated Rules and accepted a settlement agreement, with sanctions, between CIRO and Fortrade Canada Limited (Fortrade). Fortrade is a CIRO-regulated order execution-only (OEO) firm and received a $2 million fine for engaging in practices that contravene the regulatory body’s rules.
CIRO rules prohibit firms from providing recommendations to clients holding OEO accounts. Specifically, the firm faced sanctions for making trading recommendations to its clients, a violation of CIRO‘s regulations. Additionally, Fortrade Canada is mandated to compensate clients with more than US$700,000 in unresolved recommendation-related complaints and establish a US$6 million fund dedicated to reimbursing eligible clients who file claims against the company.
The punitive measures come after Fortrade Canada acknowledged its failure to comply with several regulatory standards in a settlement agreement. The firm admitted to making recommendations to its OEO account holders, not upholding a compliant supervisory system, and lacking in maintaining adequate records. This misconduct primarily affected Fortrade‘s clientele, characterized by the settlement agreement as “unsophisticated investors” with annual incomes below $50,000, liquid assets under $25,000, and limited to no previous trading experience, especially in contracts for differences (CFDs)—a complex derivative product.
Telephone records from a one-month span in 2022 revealed evidence of the firm’s contraventions. These records revealed a consistent pattern of Fortrade agents advising clients on potential trading opportunities. This included suggesting diversification into stocks like Tesla or re-engaging with commodity trades alongside emails from agents containing specific recommendations on CFD trades.
As part of its resolution with CIRO, Fortrade Canada has agreed to retain all telephone communications with clients for a duration of seven years from the call date. Furthermore, the firm consented to cover $100,000 in costs associated with the settlement. A temporary order will continue to be enforced against Fortrade until the firm fulfills its financial obligations regarding the fine, cost payments, and client reimbursements, in addition to informing eligible clients about the process for claiming their entitlements from the established fund.
This enforcement action underscores CIRO’s commitment to upholding regulatory standards and protecting investors, particularly those less experienced and more vulnerable, from potentially harmful and non-compliant trading practices.
