The Mutual Fund Dealers Association of Canada (MFDA) issued its first annual enforcement report today, indicating that it handed down almost $3.5 million in monetary sanctions and costs against individuals last year; and, pledging to introduce a new process for handling whistleblower complaints.
The report aims to illuminate the MFDA’s enforcement efforts, strengthen investor confidence in the self-regulatory organization (SRO), and to help educate dealers in an effort to enhance compliance, it says.
It details the SRO’s enforcement stats for the past year, indicating that the MFDA commenced 48 hearings in 2012; and, concluded 42 hearings, resulting in fines against individuals of $3,278,750 and costs of $216,000; along with fines of $330,000 and costs of $37,500 against dealers.
As with all of the regulators (both the SROs and the provincial authorities) collecting those monetary sanctions often isn’t easy. The MFDA reports that its penalties against dealers have all been collected, as were the sanctions against individuals that are still in the industry, although this represents just over $100,000 of the $3.5 million total ($81,250 in fines and costs of $23,500). Of the balance, which was levied against people no longer registered, it has collected another $147,500, or 4% of the total, it reports.
In addition to the monetary sanctions, it also handed down 19 permanent bans, and 13 suspensions (ranging from one month to 10 years). It also imposed penalties such as registration and supervisory bans, and additional education requirements.
The report also shows that, during the year, the MFDA took 198 public complaints, registered 230 events as cases under its METS reporting system, and opened seven internal referrals. Of these, 105 cases were referred to the investigations group, and 79 of those were referred to enforcement counsel, with a recommendation to commence formal disciplinary proceedings, it says. Also, 135 cases were closed with the issuance of a cautionary letter, and 86 were closed with a warning letter.
The top complaint involved blank signed forms, which represented 16% of the cases, followed by suitability complaints to do with leveraging at 13%, and suitability concerning investments at 10% (combining those suitability was the top issue during the year). In terms of hearings commenced during the year, most involved more than one alleged violation. The most common allegations involve outside business activities/dual occupations; falsification/misrepresentation; failure to cooperate; and, personal financial dealings.
The MFDA also notes that approximately 30% of the cases commenced involved vulnerable groups, such as seniors, as victims. During the year, the MFDA revised its case screening guidelines to identify and prioritize complaints that involve vulnerable groups, such as seniors, and investors with limited resources or language, literacy or disability issues.
In addition to the enforcement stats, the report indicates that the MFDA will be implementing a formal process for taking whistleblower reports in the year ahead. It also says that it intends to increase its participation at training and educational events conducted by dealers and outside organizations on topics such as the suitability of leveraged recommendations and investor issues that impact seniors.
“Our core focus at the MFDA is to provide protection to mutual fund investors as well as strengthen public confidence in the Canadian mutual fund industry. This report demonstrates that we have made significant efforts to achieve both of these objectives in 2012 and outlines our strategy for continuing to do so,” said Mark Gordon, president & CEO of the MFDA.