General Counsel, Corporate Secretary and Vice President, Policy
MSN - 0008
Mar 16, 2001
Policies and Procedures Manual
MFDA Staff Notices are intended to assist Members and their Approved Persons in the interpretation, application of and compliance with requirements under MFDA By-laws and Rules. Notices make reference to these requirements and set out MFDA staff's interpretation of how to comply with these requirements. Notices may also include best practices or guidance.
MFDA Rule 2.10 requires each Member to establish and maintain written policies and procedures, approved by senior management, for dealing with clients and ensuring compliance with the Rules, By-laws and Policies of the MFDA and applicable securities legislation. These policies and procedures must be set out in a Policies and Procedures Manual (“PPM”), which may be maintained in electronic form. The Member’s current PPM must be made available to all sales and supervisory personnel and maintained at head office and all branch offices. This notice provides guidelines to Members regarding the topics that should be covered in a PPM.
The PPM must establish detailed operational and administrative policies and procedures to monitor, review and ensure compliance with regulatory requirements. Therefore, the manual should, at a minimum, include the following topics:
Compliance Function and Process
- Explain the compliance function and process within the Member. This should include: the objectives of the compliance function and risk management in general; a discussion of the applicable legislation; the designated role of compliance officers and their authority, responsibility and accountability for compliance; the process for communicating relevant legislative requirements to the Member’s business units and sales and supervisory staff; procedures for monitoring and evaluating compliance practices; and internal investigation procedures with respect to compliance and control issues.
Branches and Sub-branches
- Explain and document policies and procedures relating to the regulatory requirements, organization, administration and peration of branches and sub-branches and the role and responsibilities of branch managers.
- Explain and document policies and procedures for registration and renewal of registration for Approved Persons under applicable securities legislation.
- Explain and document policies and procedures relating to the outside business activities of Approved Persons, including procedures to obtain the approval of the Member and disclosure requirements for communications with clients to clarify that any outside activities carried on by Approved Persons are not being offered by, and are not the responsibility of, the Member.
- Establish procedures to ensure that the requirements set out in MFDA Rule 1.1.7 regarding the use of business style or trade names are being complied with. In particular, with respect to Approved Persons operating under their own trade name, ensure the relevant requirements have been met, such as prior approval by the Member, notification to regulators and use of the trade name in conjunction with the Member’s name.
- Explain and document policies and procedures for dealing with new client accounts. This should cover “know your client” and “suitability of trades” guidelines and requirements, the approval and review of new accounts and the update of documentation upon changes in client circumstances.
- Explain and document policies and procedures relating to the special requirements, documentation and authorizations needed for different types of client accounts (e.g. trust accounts, registered accounts and joint accounts).
- Explain and document policies and procedures to properly supervise client account activity at both the head office and at the regional and branch level.
- Explain and document policies and procedures with respect to account transfers and the process to be followed after client authorization is obtained or received.
- Explain and document policies and procedures to ensure compliance with money laundering legislation. In particular, the policy should set out the specific records that must be obtained on account opening and maintained in accordance with the legislative requirements, and include procedures for verifying the identity of clients and handling and reporting suspicious activities and transactions.
- Explain the process that must be followed to execute securities transactions and provide samples of the required documentation.
Advertising, Sales Communications and Other Client Communications
- Explain and document a policy relating to advertising, sales communications and other client communications, which includes procedures for the review and approval of advertisements and sales communications, and policies regarding the use of rates of return in client communications.
- Explain and document procedures for handling client complaints, including the maintenance of a complaint log.
- Explain and document procedures to ensure compliance with MFDA Rules regarding referral arrangements, which should include: maintaining a list of entities and/or other Members with whom the Member has entered into referral arrangements; documenting referral arrangements (i.e. maintaining written agreements and recording fees and compensation on the books and records of the Member); disclosure obligations to clients and a process for the approval and review of new referral arrangements.
Limited Trading Authorizations
- Explain procedures relating to the acceptance and use of limited trading authorizations by Members and Approved Persons.
Borrowing for Securities Purchases
- Explain policies and procedures relating to client borrowing for securities purchases, including the delivery of risk disclosure documents to clients, appropriate client circumstances for recommending the purchase of securities by borrowing, required information to be maintained in the client file and procedures for reviewing leveraged trades.
Conflicts of Interest
- Explain policies and procedures to identify and address conflicts or potential conflicts arising in connection with business conducted by Members for clients.
- Explain and document procedures for ensuring compliance with minimum capital requirements under MFDA Rules, which should include relevant definitions (e.g. “risk adjusted capital”), sample calculations, guidelines regarding the preparation of financial statements and methods to communicate, both internally and externally, situations where the Member is operating close to early warning levels.
Bonding and Insurance
- Explain and document policies to ensure compliance with bonding and insurance requirements under MFDA Rules. Such policies should explain relevant definitions (i.e. “base amount”), required coverage amounts, detailed procedures relating to obtaining and maintaining bonding and insurance, the identification and claim of insurable losses and the notification of senior management of the Member and the MFDA of claims.
Dealer Trust Accounts
- Explain and document policies regarding the operation and maintenance of dealer trust accounts for cash held by Members on behalf of clients.
Books and Records
- Explain and document policies and procedures relating to record keeping requirements under MFDA Rules and applicable legislation, and the storage, retention and destruction of such records.