The Mutual Fund Dealers Association of Canada (MFDA) has published a notice, establishing that reps should only sell principal-protected notes (PPNs) through their dealer.
The MFDA indicates that its notice comes in response to direction from the Canadian Securities Administrators (CSA), which published its own notice last year indicating that compliance with know-your-client (KYC) and suitability obligations should apply to all PPN sales by fund dealer reps.
PPNs must be sold through registered dealers: CSA
“The CSA wants to ensure that representatives of self-regulatory organizations (SROs) who sell PPNs only do so in their capacity as an employee or agent of their registered dealer, so that the usual KYC and suitability obligations in the SRO rules apply to these sales,” it notes. And so, the CSA asked the SROs to clarify the applicability of these obligations to all dealings in PPNs by reps for SRO dealers.
In its notice, the MFDA says its staff believes that obligations to deal fairly, honestly and in good faith with clients imply that KYC and suitability obligations apply to the sale of PPNs by fund dealer reps, and that they will be sold in their capacity as an employee or agent of their firm. It also notes that MFDA staff will monitor the sale of PPNs “and take appropriate action if current distribution practices change or other regulatory concerns arise.”