On November 18, 2016, the Canadian Securities Administrators (“CSA”) released the Oversight Review Report of the Mutual Fund Dealers Association of Canada (“MFDA”) (the “Report”). The Report concluded that the MFDA processes reviewed are generally effective and efficient, and are applied consistently and fairly. However, the Report noted a number of high- and medium-priority findings, including that signature falsification remains an ongoing issue among mutual fund dealers.
The Report was conducted by seven of the eight provincial regulators that recognize the MFDA (the Prince Edward Island Office of the Superintendent of Securities did not participate) and covered the period from July 1, 2012 to July 31, 2015. Based on the findings from the previous report on this issue (which was released in April 2013 and set out the MFDA’s commitments to ensure compliance by its members with its rules and guidelines, as well as timelines and monitoring in respect of same) the CSA selected the following processes and activities for review: enforcement, financial compliance, policy, and sales compliance. The review prioritized all findings as high, medium, or low, based on the following criteria:
- High: The issue is significant or is a significant repeat finding. The MFDA must take immediate corrective action and regularly report on its progress;
- Medium: The issue is moderately significant. The MFDA is required to resolve the issue within a reasonable timeframe and periodically report on its progress;
- Low: The issue is less significant. Staff raises the issue with MFDA management for resolution within a reasonable timeframe.
The Report identified two high priority findings in the enforcement department. First, signature falsification continues to be a concern. In April 2014, the MFDA issued the Enforcement Case Handling Guidelines – Signature Falsification, and in October 2015 it released Bulletin #0661-E Signature Falsification, reminding members that all signature falsification is unacceptable and setting out the consequences for doing so. Despite these recently introduced rules, during the most recent fiscal year covered in the Report, the MFDA commenced 58 formal disciplinary proceedings regarding signature falsification. The Report notes that penalties for falsification have increased and will further increase, including suspensions where warranted, to help address this issue.
The second high priority finding in the enforcement department was that a number of cases were noted in which only approved persons had been named as respondents in circumstances in which the dealer members themselves could also have been named as respondents. In such circumstances, the issues of supervisory and executive responsibility for the conduct of the approved person in question is not addressed. The Report notes that the MFDA is reviewing and amending its practices and procedures in this respect.
With respect to financial compliance, the Report highlighted one high priority finding relating to member responses to examination files. Specifically, the Report found that in one examination file reviewed, the member had agreed to provide supporting documentation required by the MFDA, but there was no record showing that the member provided the documentation, or that the MFDA subsequently followed up with the member. The MFDA is expected to review its internal processes in respect of recordkeeping and to develop or clarify procedures to ensure that more timely follow-up action is taken.
The Report also notes five medium priority findings (two in enforcement, two in financial compliance and one in policy) and sets out various recommendations.
The MFDA is required to report on the effectiveness of steps taken in respect of the Report’s findings by January 31, 2017.