Securities regulators have approved a series of rule amendments designed to improve client-dealer communications in the investment fund industry.

In Friday’s OSC Bulletin, it’s reported that the Ontario Securities Commission and other regulators have approved amendments to the rules of the Mutual Fund Dealers Association of Canada regarding client accounts, account supervision, client reporting and communications.

The amendments will:

– require that investors are provided with certain fundamental information at the time an account is opened to ensure that clients are aware of the role and responsibilities of MFDA firms, and what to expect as far as services and costs;

– clarify the duty of dealers and reps to assess the suitability of investments in each client account when various triggering events occur, and in discharging their suitability obligations;

– require dealers to provide certain account performance information to clients on an annual basis; and

– clarify firms’ supervisory requirements regarding client communications that disclose a rate of return.

The regulators note that fund dealers must remember that the amendments “are only a first step towards developing comprehensive performance reporting requirements”, and that the Canadian Securities Administrators are currently working together with the MFDA and the Investment Industry Regulatory Organization of Canada to develop harmonized requirements for enhanced cost disclosure and performance reporting requirements. Indeed, the amendments approved Friday partly represent the MFDA’s implementation of the Client Relationship Model, which the SROs have been working on for several years.

Paige Ward, director of policy and regulatory affairs at the MFDA, indicates that the rule amendments will be put before the MFDA’s members for ratification at its annual general meeting in December, and, assuming they are approved, will take effect after a transition period. A new policy regarding minimum account supervision is effective immediately, except for certain sections which also rely on the proposed rule amendments that must be ratified.

Additionally, the MFDA said that changes to its rules of procedure have received all the requisite regulatory approvals and are now in effect. The amendments include: minor housekeeping amendments; enhancements to the current rules of procedure, based on proceedings that have been conducted to date; and, new rules of procedure governing applications for interim relief and the appointment of monitors.

The MFDA says that the amendments will assist hearing panels and participants by providing additional guidance, adding that the amendments, “are intended to enhance the efficiency, effectiveness and fairness of MFDA proceedings by providing greater clarity and transparency with respect to the hearing process.”

IE