MFDA promises to review every member

(September 12, 2003) Mutual fund dealers, be forewarned: Keep your books in order — sooner or later, everyone will come under scrutiny.

As a self-regulatory organization, the MFDA is currently reviewing both the sales practices and financial operations of all its members. So far the MFDA compliance office has completed 44 examinations but eventually every MFDA member firm will be reviewed. The MFDA’s goal is to review each firm at least once every two years.

Director of compliance Karen McGuinness explained the selection procedure at IFIC’s 17th annual conference on September 10. The selection of “who goes first” is based on a variety of factors, including risk assessment, resource availability and location.

“If you’re picked it doesn’t necessarily mean you were bad. If you haven’t been picked, it doesn’t necessarily mean you’ve been good either,” McGuinness explains.

The procedure will start with an initial call to let the member firm know that it is about to be scrutinized and should make sure its documents are in order.

The review itself begins with an interview with the compliance officer before the documentation is examined. At least three branches will be reviewed, as well as the firm’s head office. The process ends with an exit interview and a written report to the firm.

McGuinness says the most common deficiencies in sales practices include: lack of supervision and lack of evidence of supervisory review; lack of complaint handling procedures; missing or incomplete client records; lack of required client disclosures; lack of agent records; and out-of-province clients.

The most common deficiencies in financial filings include: reporting that doesn’t follow generally accepted accounting principles; errors in adding and cross-referencing; misclassification of assets and liabilities; no margin taken on marketable securities; incomplete filings; and missing or late filings.

McGuinness says among the most common errors in the incomplete filings are missing signatures or the wrong person has signed off on the filing. Since the MFDA was established, the incidence of completely missing filings has fallen.

Severe breaches of regulations, including theft, fraud, abusive sales practices, discretionary trading or failure to cooperate with the review will lead to a firm being referred to the enforcement department.

Filed by Steven Lamb, Advisor.ca, slamb@advisor.ca