The Independent Financial Brokers of Canada has filed an application for a hearing with the Ontario Securities Commission to quash controversial changes to a by-law that was passed in August, IFB president Merlin Chouinard said on Tuesday.

Speaking at the IFB Fall Summit, Chouinard said the IFB was surprised to find out on Aug. 1 that the OSC had approved a proposal by the Mutual Fund Dealers Association that broadens the circumstances in which the MFDA can suspend or terminate licenses of mutual fund advisors who have acted “inappropriately.”

The MFDA initially published the proposal for comment in October 2006. According to the MFDA, “the proposed amendments will enhance the ability of the MFDA to protect investors in circumstances where it is not reasonable or practical to proceed by way of a regular disciplinary hearing.” It allows the suspension of a license ex parte — or without notice — to the person affected.

The IFB sent a letter of response outline several concerns with the proposal in November 2006. Specifically, the IFB was concerned that the proposal allows the MFDA to suspend a license when it “receives information regarding the incapacity of the person, by reason of mental or physical illness, or other infirmity or addiction to or excessive use of alcohol or drugs.”

This implies that no evidence is required to back up the information, according to Chouinard. “This information could simply be based on gossip or hearsay,” he said.

He added that the broad wording of the by-law is particularly worrisome. “The thought that the MFDA can suspend your license on the basis of an unsubstantiated report and without notice to you is chilling, indeed.”

In its response to the IFB comments, the MFDA said the provision “is designed to enhance investor protection in circumstances where an approved person is no longer fit to conduct securities related business.”

The MFDA added that the Hearing Panel must receive evidence of the incapacity, and “must be satisfied that the Approved Person cannot continue to conduct securities related business without risk of imminent harm to the public, other Members or the MFDA.”

Still, the IFB is unhappy with the approval of the changes, and alleges they may even violate an advisor’s rights under federal human rights and privacy legislation. The association hopes the hearing will find that the amendment is contrary to Ontario’s Securities Act.

“This is big stuff coming out of a relatively small association,” said Chouinard. “We don’t have the deepest pockets in an industry which has lots of big players.”

IE