The Mutual Fund Dealers Association of Canada is considering rule amendments that would require all reps to put their sales of principal-protected notes (PPNs) through their dealer, including bank employees.

In a notice issued Friday, the MFDA said that the Canadian Securities Administrators recently requested that it “take appropriate action to ensure that know-your-client and suitability obligations apply to all dealings in PPNs” by reps of MFDA firms.

It also reports that the CSA expects the MFDA to enforce these obligations on the sale of any PPN, whether or not it falls within the definition of a “security” in all jurisdictions. “This would include PPNs that are deposit instruments currently sold by [reps] outside an MFDA member,” it notes; and it says the CSA believes these obligations should apply to all dealings in PPNs, including reps that are also bank employees.

To comply with the CSA request, the MFDA says it will consider rule amendments to require the sale of all PPNs, including those by dually-employed reps, to be conducted through their MFDA firm, and therefore subject to product due diligence, KYC and suitability obligations.

The MFDA’s staff is developing a discussion paper for consideration by its policy advisory committee, and it is seeking comments from members to help in developing the amendments. “In particular, it would be helpful if members could provide information regarding the scope of PPN activity conducted outside the member firm including the number of approved persons currently selling PPNs outside the member and the market value of such products,” it says. The deadline for comments is February 20.

IE