Alberta regulator releases IDA, MFDA audits

(September 13, 2004) Issues surrounding the suitability of client investments remain the most frequent investor complaint against the IDA’s prairie office, according to a recent audit conducted by Alberta’s securities regulator. And there are concerns over the way IDA staff are handling such complaints, the Alberta Securities Commission says.

The ASC conducted an extensive audit of the prairie regional office of the IDA in October and November of last year. The audit generally gives the IDA satisfactory ratings in areas such as sales compliance, financial compliance, registration, membership applications and enforcement.

However, the audit also raises questions about how IDA staff handles certain sales compliance concerns, such as unsuitable investments. A review of two files reveals that while IDA staff did ask the member to correct the deficiency, it did not require the member to review similar deficiencies and make corrections.

“Further, IDA staff did not ask the member to implement policies and procedures to ensure investment suitability is properly documented and reviewed in the future.”

In response, the IDA said that if a sampling of new client application forms indicated a serious failure in the firm’s supervision and control procedures, the firm would be required to improve those procedures. “We will ensure that our sales compliance officers are diligent and thorough in making their assessment.”

The audit also raises questions about the length of time between the completion of fieldwork and the issuance of a final efficiency report to a member. The IDA’s benchmark for such a process is 60 days, but the ASC notes while the numbers have improved from previous years, the average number of weeks it took to issue a report to members in 2003 was 16 weeks, or 112 days.

In addition, the ASC recommends that the IDA increase the frequency of branch office reviews, noting that only 12 were completed in 2003 (there are approximately 128 IDA branches in the prairie region).

In the area of registration, a previous ASC audit released in 2001 concluded that the prairie office’s registration department was functioning without an adequate level of review procedures. The new audit states that the problem still exists and recommends that registration managers randomly select applications for review to ensure they are being handled properly.

On the MFDA side, the ASC audit was also satisfied with the operations of the fund dealer association’s compliance and membership application departments, although it did add that the commission was concerned that the MFDA was taking too long to issue compliance reports and noted that deficiencies noted during the membership application review were not being addressed by MFDA members on a timely basis.

In response, the MFDA noted that its goal of conducting compliance reviews of the country’s approximately 200 fund dealers within three years of the MFDA’s 2001 start-up remains on target. The fund dealer association also pointed out that it has now completed registering the country’s approximately 55,000 mutual fund salespersons and has recently revised its application program to reflect the fact that the initial influx is past and that new applications will be processed on an intermittent basis.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com