This bulletin summarizes key regulatory initiatives of the MFDA’s Compliance and Member Education Departments for 2021. An important aspect of our regulatory approach is a focus on preventing compliance issues through proactive steps and guidance.
We issue our compliance priorities annually to provide transparency and to support Members in their own efforts to identify potential risk areas and enhance their supervision and controls. The initiatives and priorities reflect the continuing evolution of our compliance program and our commitment to an approach that improves client outcomes and is proactive, collaborative and risk-based.
The use of data, analytics and technology in our compliance program has increased significantly in recent years and is key to our compliance approach as we move forward. Through various initiatives including the MFDA’s Client Research Projects we have obtained invaluable data on Member activities, client investments and investor outcomes. This data-driven, analytical approach to compliance allows us to focus on the issues that are most impactful to clients and is integral to our approach.
MFDA has remained fully operational throughout the pandemic and continues to perform all our regulatory activities in support of our investor protection mandate. We are committed to providing support and guidance to help stakeholders stay informed about the impact of COVID-19. MFDA created a new section on its website to provide COVID-19 information to stakeholders. New information will be posted on the website as appropriate.
As a result of COVID-19, Members have had to move to remote client servicing and work-from-home arrangements. MFDA Compliance staff has supported Members through this transition and will continue to provide assistance as circumstances change. We encourage Members to contact us to discuss any significant changes to their business operations.
Over the last several years, the MFDA has implemented several initiatives relating to the protection of seniors and vulnerable clients. These have included i) participating in policy development with the Canadian Securities Administrators on the use of a Trusted Contact Person and Temporary Holds to protect vulnerable clients; ii) organizing educational events providing guidance on protecting and servicing senior clients and iii) implementing a risk-based focus in both Compliance and Enforcement activities on seniors and other vulnerable clients. MFDA will continue its regulatory focus and intends on providing further guidance to Members and Approved Persons to assist them in servicing vulnerable clients.
We are currently conducting a targeted examination of performance reports issued by Members to clients. We began by reviewing the performance data submitted in the Client Research Project to select the Members who would be involved in the targeted examination. The selected Members were then asked to provide us with a risk-based sample of the annual performance reports sent to clients. We are currently reviewing the annual performance reports to assess whether performance data was accurately reported to clients. Members are reminded to carefully review and test their annual performance reporting as inaccurate reporting can significantly impact investment decisions. Where unexpected or unusual returns are identified it is important for Members to investigate such instances to identify the specific cause and determine the extent of any issue.
Client Focused Reforms (CFRs)
Compliance staff have been participating on the CSA’s CFR Implementation Committee comprised of representatives from industry and securities regulators across Canada. The purpose of the CFR Implementation Committee is to consider operational challenges faced by registrants and provide guidance on how to comply with the new requirements. We encourage Members to contact us with any questions about complying with the CFR requirements so we can facilitate resolution of any implementation issues.
On January 28, 2021, the CSA issued blanket relief orders allowing MFDA Approved Persons to distribute alternative mutual funds provided certain proficiency requirements are met and notification is given to the principal securities regulator (please refer to MFDA Bulletin #0851-P for further information). Where a Member is distributing alternative funds, in addition to examining Member product due diligence practices and performing suitability testing, we will also be assessing compliance with the blanket relief orders.
2. MEMBER EDUCATION
The Member Education Department continues to participate in Member and industry events to provide guidance on various topics including regulatory initiatives, seniors’ issues, supervisory requirements, branch review programs, KYC practices, suitability, continuing education and outside activities. Members that are interested in having MFDA staff participate in their virtual training and education events should contact Membership Services for further assistance.
Key initiatives for the Member Education department are outlined below.
Continuing Education (CE) Requirements
The focus for 2021 will be obtaining approval or non-objection from the Canadian Securities Administrators (CSA) to the proposed accreditation standards and completing CERTS system development. CERTS system testing is currently underway and policy development is in the final stages of completion. Once the accreditation standards and CERTS system are finalized, there will be a transition period before the CE requirements come into effect. The first CE cycle will be determined based on a December 1st cycle start date to coincide with the CE cycle of the Chambre de la sécurité financière in Quebec.
The MFDA will be issuing a cybersecurity survey to all Members with a view to understanding current Member cybersecurity practices, changes in practices since our last assessments and the impact of COVID-19. Each Member will receive a report summarizing individual results and providing a comparison amongst its peers. The results of the survey may also be a topic for future webinars.
The MFDA continues to utilize data to drive regulatory activity. The resulting unprecedented view into retail clients has been invaluable in performing our regulatory activities and highlights the important role our Members have in the wealth management industry. In 2021 we will be issuing another client research request to continue to build on this important work.