Fox Collins Securities Inc. - Opportunity to be Heard
In the Matter of Staff’s Recommendation
for Terms and Conditions on the Registration
of Fox Collins Securities Inc.
Opportunity to be Heard by the Director
Section 31 of the Securities Act (Ontario)
Decision
1. For the reasons outlined below, my decision is to impose the terms and conditions set out below on Fox Collins Securities Inc. (Fox Collins) for a minimum period of six months.
Overview
2. By letter dated April 28, 2011, Staff advised Fox Collins that it was recommending to the Director that terms and conditions be imposed on Fox Collins in relation to the late filing of its annual audited financial statements. The terms and conditions had two parts. Part one required the filing of monthly year-to-date unaudited financial statements and capital calculations for a minimum period of six months. Part two required Fox Collins to review its procedures for compliance with Ontario securities law and to provide a report with the Commission. The letter also advised Fox Collins that late filing fees of $600 were due. The late filing fees have been paid by Fox Collins.
Process for requesting an opportunity to be heard
3. Under section 31 of the Act, if a registrant wants to oppose Staff’s recommendation for terms and conditions, the registrant may request an opportunity to be heard (OTBH). By email dated May 5, 2011, David Fox, Fox Collins’ ultimate designated person (UDP) and chief compliance officer (CCO) requested an OTBH. My decision is based on the written submissions of Staff (Michael Denyszyn, Senior Legal Counsel, Compliance and Registrant Regulation Branch) and David Fox on behalf of Fox Collins.
Submissions
4. Fox Collins has been registered under the Securities Act (Ontario) (Act) since October 2010 as an exempt market dealer. The fiscal year end for Fox Collins is December 31. Under section 12.12(a) of National Instrument 31-103 Registration Requirements and Exemptions, the annual audited financial statements of Fox Collins were due no later than March 31, 2011. Fox Collins filed its annual audited financial statements on April 10, 2011, six business days after they were due.
5. Staff submits that the timely filing of annual audited financial statements by registrants is one of the most serious regulatory obligations in the Act and that financial statements are the principal tool enabling Staff to monitor a registrant’s financial viability and capital position.
6. For these reasons, Staff uniformly recommends the imposition of terms and conditions on the registration of registrants that do not file their annual audited financial statements on a timely basis. In Staff’s opinion, the filing of annual audited financial statements is a serious regulatory obligation and only in extremely rare circumstances would Staff not recommend imposing terms and conditions on a registrant that filed its financial statements late.
7. Fox Collins submits that its failure to file its annual audited financial statements on a timely basis was “an oversight owing to the fact that this was [Mr. Fox’s] first year as a registrant responsible for such filings”. Fox Collins also submits that “there is little if any risk that Fox Collins would fail its minimum capital requirements” and says that “Fox Collins has no financial liabilities or expenses of any sort apart from [Mr. Fox’s] discretionary draw”.
8. Fox Collins also submits that the one time filing of the year-to-date unaudited financial statements and calculations or required minimum capital should be sufficient for Staff.
Decision and reasons
9. My decision is to impose part one of the terms and conditions recommended by Staff on the registration of Fox Collins for a minimum period of six months starting June 30, 2011.
10. It is Staff’s longstanding position that it is the responsibility of the registrant to ensure that its annual audited financial statements are filed on a timely basis. As set out above, Staff’s view is that the timely filing of annual audited financial statements is one of the most important of a registrant’s ongoing filing obligations. Only in rare and extenuating circumstances will a registrant be permitted to file its annual audited financial statements late and not be placed on the recommended terms and conditions. In my view, these rare and extenuating circumstances are not present in this case.
11. I was not convinced that it was a hardship for Fox Collins to comply with the terms and conditions proposed by Staff. As well, see Re CR Advisers Corporation, where the Director specifically addressed the provision of monthly unaudited financial statements, saying:
“It should not be a burden for the Registrant to provide monthly unaudited financial statements. The financial statements are not required to be reviewed by an auditor and all registrants are required to maintain proper books and records at all times.”
12. However, since Fox Collins is a very small registrant with only one employee, I did not see the utility of imposing part 2 of Staff’s recommended terms and conditions. It is my sincere hope that Fox Collins now understands the reasons for its failure to meet the annual audited financial statement filing requirement and that it will ensure that its compliance system will enable it to meet its on-going registration requirements on a timely basis.
13. The terms and conditions imposed on Fox Collins’ registration are as follows:
The Firm shall file on a monthly basis with the Registrant Conduct and Risk Analysis team of the Ontario Securities Commission, attention Financial Analyst, starting with the month ending June 30, 2011 the following information:
- year-to-date unaudited financial statements including a balance sheet and an income statement, both prepared in accordance with generally accepted accounting principles; and
- month end calculation of minimum required capital;
no later than three weeks after each month end.
Deputy Director
Compliance and Registrant Regulation Branch
Ontario Securities Commission
June 6, 2011