The Mutual Fund Dealers Association has discovered firms and reps with clients located in provinces and territories in which they are not registered. The MFDA says it made the discovery while conducting compliance examinations.
The self-regulatory organization says it is giving firms six months to get this issue sorted out, or they may face discipline.
MFDA rules and provincial securities legislation require registration in jurisdictions where clients are located. This applies regardless of where the client was located when the account was opened, and whether or not there is trading in the account.
For existing situations, firms and reps must rectify the problem within six months, by either transferring the client to an appropriately registered rep, or by obtaining registration in the relevant jurisdiction. MFDA staff may set shorter deadlines in specific cases.
As well, the MFDA says that firms must have procedures and internal controls in place within six months to prevent the opening of new accounts in jurisdictions where the firm or rep is not registered, and identify and take appropriate action where clients move to jurisdictions where they aren’t registered.
The MFDA warns that if there are additional aggravating factors or the deadline is not met, it will take “appropriate action”, which may involve disciplinary proceedings..
The MFDA says that the Canadian Securities Administrators view this issue as a significant breach of legislation and have requested the MFDA notify them when a firm or rep is operating in their jurisdiction without proper registration.
It also notes that those with accounts outside of Canada are also obligated to comply with securities laws in those jurisdictions. Disciplinary action may also be taken by the MFDA or Canadian or international securities authorities for breach of those requirements.
In cases where a firm is not registered in a jurisdiction where a client is resident, and has been unsuccessful in having the client transfer an account to another dealer, the MFDA expects that the firm will maintain evidence that it has:
- taken steps to prevent all trading in the account, including cancellation of all PACs and SWPs;
- made all reasonable efforts to obtain the current address for the client;
- advised the client in writing at the client’s last known address to arrange a transfer to another dealer; and
- that trading prohibitions have been put in place.
The MFDA says the firm remains the dealer of record until the account, whether nominee or client name, is transferred to another registered dealer.