Fund dealers should be paying special attention to their sales of exempt securities, use of leverage, and seniors issues, among other things, suggests the Mutual Fund Dealers Association of Canada (MFDA) in a regulatory bulletin.
The MFDA issued a bulletin Tuesday setting out its regulatory priorities, and recommending that dealers assess their supervisory structures, risk management practices, and policies and procedures in these areas to determine if adequate internal controls are in place.
The areas enumerated in the bulletin include: exempt securities, outside business activities, trade and supervisory inquiries, leveraging, branch review programs, blank-signed forms/altering documentation, complaint handling, and seniors’ issues.
In terms of exempt securities, it stresses that dealers must have adequate internal controls, as well as policies and procedures, related to sale of these sorts of products. Given the added risks of certain exempt securities, such as hedge funds and limited partnerships, the MFDA stresses that it is important that “a reasonable level of due diligence” is performed prior to their approval for sale. Dealers must also ensure compliance with the exemption criteria, and they are required to ensure suitability as well.
In terms of leveraging, it stresses that firms should have policies in place to ensure they meet their leveraging suitability obligations, including criteria for assessing the suitability of a client’s use of leverage and describing appropriate circumstances for recommending the use of leverage.
The bulletin also stresses that protecting senior investors is “an area of focus and a strategic initiative” for the MFDA. It says firms should consider certain senior-specific issues in their supervisory work, including: reviewing new account and KYC paperwork, suitability reviews, marketing and advertising, and the use of business titles specifically directed towards senior investors (to ensure they don’t mislead clients). It suggests that firms should consider developing specific procedures to supervise activity with senior investors.
Additionally, it notes that dealers are responsible for maintaining policies and procedures to ensure the fair and prompt handling of client complaints, and it sets out what those policies should include. This may be a particular issue for seniors, it suggests, as they may have physical limitations that would make it difficult to submit a formal written complaint; so, it suggests that dealers should be prepared to assist senior clients in documenting their verbal complaints.