Disgorgement – Proposed Amendments to the Mutual Fund Dealer Rules

1. Background

The Proposed Amendments are necessary for CIRO to implement its Disgorgement Distribution Proposal.

On February 1, 2023, CIRO (under its previous name, New SRO) published for public comment a proposal to distribute funds disgorged and collected through CIRO disciplinary proceedings to harmed investors, in order to offset some of their losses (the Disgorgement Distribution Proposal)1.

On October 21, 2024, CIRO republished the unamended Disgorgement Distribution Proposal with an impact assessment, added clarifications and further details in its responses to the public comments, and included an updated list of consultation questions2. One question specifically addressed the application of the Disgorgement Distribution Proposal to clients of all CIRO Dealer Members, i.e., the clients of all investment dealers, mutual fund dealers and dual-registered dealers regulated by CIRO. All commenters who responded to this question agreed that the Disgorgement Distribution Proposal should apply to all CIRO Dealer Members, as it would show CIRO’s commitment to protecting investors regardless of where they invest, and would strengthen public confidence in the regulatory system. One commenters called for the expedited implementation of this specific point.

In light of these comments, CIRO intends to implement its Disgorgement Distribution Proposal in 2026, rather than awaiting the finalization and implementation of the proposed CIRO Rules.

2. Proposed Amendments

While there is overlap between the concept of fines and disgorgement, their inherent distinctions warrant specific drafting in the corresponding rule sets.  

The current IDPC Rules explicitly address disgorgement and fines as distinct types of sanctions: CIRO hearing panels adjudicating proceedings under the IDPC Rules are empowered to order disgorgement under clauses 8209(1)(ii) and 8210(1)(ii), and fines under clauses 8209(1)(iii) and 8210(1)(iii) of the IDPC Rules. 

In contrast, the MFD Rules do not explicitly provide for disgorgement. However, CIRO hearing panels adjudicating proceedings under the MFD Rules are empowered to impose fines of the same quantum in MFD Rule sections 7.4.1.1(b) and 7.4.1.2(b), i.e. fines not exceeding the greater of $5 million per offence or an amount equal to three times the profit obtained or loss avoided as a result of committing the violation. Therefore, the concept of disgorgement, i.e. the profit obtained or loss avoided as a result of committing the violation, has already been covered by the rules applicable to mutual fund dealers for many years. To exemplify this point, we note that MFDA hearing panels have often ordered global monetary sanctions that explicitly make reference to disgorgement. This practice is also reflected in the current CIRO Sanction Guidelines, which specify that, where applicable, disgorgement should be ordered in addition to any fine.

To add clarity and predictability for Mutual Fund Dealer Members and their Approved Persons, the Proposed Amendments intend to harmonize the drafting across the rule sets that allow CIRO hearing panels to order disgorgement by replicating the same provision that currently exists in IDPC Rules sections 8209 and 8210, and mirroring that drafting in sections 7.4.1.1(b) and 7.1.1.2(b) of the MFD Rules.

The text of the Proposed Amendments is set out in Appendix A, and a blackline of the Proposed Amendments to the MFD Rules is set out in Appendix B.

3. Impacts of the Proposed Amendments

A detailed assessment of the impact of the Proposed Amendments has been prepared and is included as Appendix C.

No regional effects have been identified.

4. Implementation

Subject to the required approvals, we intend to implement the Proposed Amendments in 2026.

5. Policy Development Process

5.1 Regulatory Purpose

We took the public interest into consideration when developing the Proposed Amendments and we believe that the Proposed Amendments achieve their intended objective to add clarity and predictability to CIRO’s regulatory framework by ensuring that all CIRO Dealer Members are subject to the same explicit sanctions.

The Proposed Amendments will also enable CIRO to implement its Disgorgement Distribution Proposal more expeditiously in the interim of the CIRO Dealer and Consolidated Rules coming into effect3.

For these reasons, we believe the Proposed Amendments will foster public confidence in capital markets and will strengthen CIRO’s enforcement and investor protection mandate.

These outcomes are in the public interest.

5.2 Regulatory Process

The Board of Directors of CIRO (Board) has determined the Proposed Amendments to be in the public interest and on June 18, 2025 approved them for public comment.

We consulted with the following CIRO advisory committee on this matter:

• Conduct, Compliance and Legal Advisory Section (CCLS)

After considering the comments on the Proposed Amendments received in response to this Request for Comments together with any comments of the CSA, CIRO staff may recommend revisions to the Proposed Amendments. If the revisions and comments received are not material in nature, the Board has authorized the President to approve the revisions on CIRO’s behalf and the revised Proposed Amendments will be subject to approval by the CSA. If the revisions or comments are material, CIRO staff will submit the Proposed Amendments, including any revisions, to the Board for approval for republication or implementation, as applicable.

6. Appendices

Appendix A - Proposed Amendments to MFD Rules (clean)

Appendix B - Proposed Amendments to MFD Rules (blacklined)

Appendix C - Impact Assessment

• 1

  Proposal on Distributing Funds Disgorged and Collected through New SRO Disciplinary Proceedings to Harmed Investors, published on February 1, 2023, as Notice 23-0010.

• 2

  Distributing Funds Disgorged and Collected through CIRO Disciplinary Proceedings to Harmed Investors (Phase II), published on October 21, 2024 as Bulletin 24-0290.

• 3

  In parallel with the publications of the Disgorgement Distribution Proposal referenced above, CIRO published a proposal to adopt the existing IDPC Rules to be applicable across all CIRO Dealer Members in Phase 3 of the Rule Consolidation Project. See Rule Consolidation Project – Phase 3, published on April 18, 2024, as Notice 24-0145.