Mutual fund dealers have approved amendments to know-your-client (KYC) rules to ensure that any use of leverage is suitable.
The Mutual Fund Dealers Association of Canada (MFDA) said Monday its members approved several amendments at its latest annual general meeting, including changes to its KYC rule.
The amendments, which still require securities commission approval before they take effect, aim to clarify the obligation for dealers and reps to ensure suitability when it comes to recommendations involving borrowing for investment purposes.
In its latest bulletin, the MFDA says that proposed amendments to its rules will clarify that, where a transaction proposed by the client is not judged to be suitable, that dealer and rep obligations to advise the client of this fact, and to maintain evidence of the advice, apply to transactions involving the use of borrowed funds. It also clarifies that dealers and reps are required to use due diligence to ensure that the suitability of the use of leverage is assessed on certain trigger events.
Once they receive regulatory approval, the amendments will be effective on a date to be determined by the MFDA.
Also at last week’s AGM, fund dealers approved amendments to the MFDA’s governance by-laws to permit a broader range of people to be considered as candidates for public director positions on the MFDA board, and to increase industry director participation on the audit committee to allow for broader industry input. Those amendments have received all requisite approvals and are now effective.