The Mutual Fund Dealers Association of Canada said Tuesday it has decided not to change its approach to the practice of fund dealers using third-party back-office service providers.

Earlier this year the MFDA issued a consultation paper soliciting feedback from dealers and others about the use of third party back-office service providers to identify concerns with the practice, and proposing possible solutions to address these concerns. At the time, the MFDA noted that its staff is often asked for assistance in addressing issues related to firms that provide back office functions such as processing trades, generating and maintaining books and records and supervising compliance with regulatory requirements.

Third party back-office firms get MFDA’s attention

In the paper, it noted that the regulatory concerns include service providers that are unable to make systems changes quickly; the risk that dealers rely on these firms to ensure compliance without performing a detailed review of the system; systems that do not meet the record-keeping requirements; and systems that provide inadequate compliance tools.

The paper outlined three potential solutions: requiring firms to only use third party back-office service providers that are approved by the MFDA; developing a list of service providers whose systems have been reviewed and approved as compliant with MFDA requirements; and maintaining the current ad hoc approach, whereby when deficiencies in a system are identified, MFDA staff provides notification to the service provider and all members using the system outlining how the system does not meet MFDA requirements.

On Tuesday, the regulator published a summary of the comments it received on the paper, indicating that the majority of commenters said the MFDA should maintain its current approach to third party back-office service providers. The MFDA says the comments noted that this approach provides firms with the flexibility to determine what solutions are best for their specific activities.

The regulator will be following that path and maintaining its current approach of addressing issues directly as they arise with the service providers and affected members.

The comments themselves were not made public to avoid unintended disclosure of proprietary information.