MFDA Member Outreach Initiative
In July 2018, as part of the MFDA's 2018-2022 Strategic Plan, the MFDA launched its Member Outreach Initiative to obtain Member feedback on a wide variety of matters, including issues to discuss with senior management, areas for additional guidance and interest in participating in focus groups. MFDA staff completed preliminary calls to Members in November 2018 and received feedback from Chief Compliance Officers of 88 Members. In April 2019, independent consultants held focus groups and one-on-one interviews with Chief Compliance Officers and Ultimate Designated Persons of MFDA Members. General topics discussed during the consultations included:
- current industry challenges and issues affecting Members, such as the evolution of business models, the impact of new technology, changing consumer expectations, and reduction of regulatory burden;
- areas for further guidance or other support from the MFDA; and
- ways to improve communication and engagement with the MFDA.
The independent consultants prepared a report outlining key themes identified during the consultations and recommendations. (MFDA Bulletin #0792-M MFDA Member Outreach Initiative].
Innovation Outreach and Collaboration
Members are, increasingly, adopting new technologies, which allow them to enhance operational efficiencies and offer new products and services to clients. The MFDA supports such innovation provided that issues related to investor protection, risk management, and the safety/security of client personal information continue to be appropriately addressed.
MFDA staff continues to encourage Members to proactively collaborate with MFDA staff to ensure the successful implementation of new technology. The MFDA has encouraged Members to contact their Compliance Manager to provide MFDA staff with demonstrations or discuss plans to implement new technologies. As part of this innovation outreach, the MFDA received requests from Members to consider business structures that would permit limited discretionary trading in mutual fund model portfolios.
Member and Approved Persons Education and Proficiency
Over the past year, the MFDA has continued to work towards the development and implementation of Continuing Education ("CE”) requirements for Approved Persons of MFDA Members. The proposed CE requirements, which were developed and refined based on prior work and public consultations, will be brought forward to the 2019 Annual General and Special Meeting of Members. On July 19, 2019, MFDA staff issued a discussion paper seeking comment on a proposed accreditation process for CE credits. MFDA staff also continued to work on the development of the CE tracking system, which will include extensive testing and training for Members, advisors and education providers.
In FY 2019, MFDA staff presented at 23 Member, industry association, investor advocate and other regulatory events on various topics including:
- MFDA regulatory priorities;
- branch review programs;
- KYC information;
- total cost reporting;
- lower MER series funds;
- promotional items;
- sales incentives;
- ETFs; and
MFDA Member Regulation Forums were held by webcast in Fall 2018 and in person in Spring 2019 in Vancouver, Calgary, Toronto and Montreal. Both provided updates on compliance, enforcement and policy activities.
Approved Person Targeted Review
In 2018, MFDA staff commenced an Approved Person Targeted Review utilizing information obtained from the Client Research Project. This initiative was part of our continued efforts to enhance suitability testing in our examinations by further utilizing technology and data to help identify patterns or trends and target issues, such as concentration risk and unsuitable investments for seniors. In April 2019, a report was issued outlining findings and recommendations (MFDA Bulletin #0783-C Approved Person Targeted Review).
Conflicts of Interest - Promotional Items
In FY 2019, the MFDA continued its work on conflicts of interest by commencing a review of Member policies and procedures relating to Approved Persons' receipt of promotional items from mutual fund companies or participation in promotional activities that are funded by mutual fund companies. MFDA Bulletin #0776-C Conflicts of Interest – Promotional Activities which summarizes our findings and recommendations was issued on March 5, 2019. We will collaborate with other regulators, industry associations and other third parties going forward to seek harmonization in this area.
Total Cost Reporting
The MFDA published for a 90-day comment period, a Discussion Paper on Expanded Cost Reporting, the purpose of which was to promote further discussion in respect of expanded cost reporting requirements under Rule 5.3.3 in April 2018. On November 20, 2018, MFDA staff issued Bulletin #0764-P Discussion Paper on Expanding Cost Reporting – Summary of Comments providing a summary of the public comments and response of MFDA staff. Total cost reporting, provided on a consolidated basis, will be more helpful to investors, and communication between regulators will be an important part of exploring options and developing potential future directions for this initiative. We have collaborated with various stakeholders including regulators, industry associations and investor advocates in the past and will keep current on research being undertaken by such stakeholders. We also intend to undertake additional initiatives in the coming year.
Supporting Members in their effort to address cybersecurity risks continues to be a focus for the MFDA.
In FY 2019, MFDA staff engaged the services of a consultant to perform individualized detailed assessments of each Member's cybersecurity risks and related internal controls, on a voluntary basis. The assessments offered an evaluation of the Member's cybersecurity procedures and framework as well as the performing of penetration testing and vulnerability scans of the Member's systems. Members participating in this initiative received a comprehensive, individualized report from the consultant which will assist them in focusing resources, if necessary, on areas of greatest risk to the Member.
Client Research Project
The MFDA, in collaboration with the AMF, issued a request to all Members on November 29, 2018 for data relating to investments held in all client accounts. This client research provides the MFDA with valuable information and insight into Members, their Approved Persons and the clients they serve. We use this information in our examination process to better focus on risk areas and to understand the potential impact of regulatory change. We have built upon the last client research initiative in 2016 by adding performance and cost data to the request. These two new data elements will give us a better understanding of actual client outcomes. We anticipate issuing a summary report in 2020.
Investor Outreach and Education
In FY 2019, MFDA staff held meetings with investor advocates and organizations involved in investor engagement, outreach and the protection of vulnerable persons. These outreach meetings provide individuals and organizations an opportunity to dialogue with MFDA staff and share views on issues affecting Canadian investors. Feedback we receive from these meetings enables MFDA staff to better respond to investor needs.
In addition to its regular investor outreach meetings, MFDA staff directly sought out investor perspectives by presenting new policy initiatives directly to investor advocates. These presentations enable MFDA staff to clearly communicate the purpose and rationale of various policy initiatives, and provides investor advocates with an opportunity to ask questions and seek clarifications prior to submitting formal comment letters.
MFDA staff continues to provide investor education and assist investors in understanding the financial services industry, different investment products, and how investors can protect themselves from financial fraud. Educational materials are maintained on the investor education section of the MFDA website and communicated through Investor Bulletins published by MFDA staff.
In FY 2019, MFDA staff published a number of Investor Bulletins that focused on:
- Seniors and the actions the MFDA is taking to protect them, as well as an explanation of suitability and KYC requirements
- Protecting investors from financial fraud and steps investors can take to identify and protect themselves from common financial scams
- Mutual fund fees and how they impact investment returns, and actionable steps investors can take regarding the fees they pay.
The seniors section of the MFDA website was updated in order to enhance accessibility to investor education information relevant to seniors.