General Counsel, Corporate Secretary and Vice President, Policy
MSN - 0072
Mar 29, 2010
Payment of Commissions to Unregistered Corporation
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.
This Notice replaces MFDA Staff Notice MSN-0002 Payment of Commissions to Non-Registered Entities, issued on May 15, 2001. The form of Agreement issued as Schedule “A” to that Notice has been revised in accordance with the terms of Rule 2.4.1 (Payment of Commissions to Unregistered Corporation), as amended, and will be replaced by the Agreement contained in this Notice.
The securities regulatory authorities in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick and Nova Scotia (the “Recognizing Regulators”) have approved/not objected to proposed amendments to MFDA Rule 2.4.1. The Rule, as revised, is effective immediately.
Under Rule 2.4.1, as revised, where an Approved Person acts as an agent of the Member in compliance with MFDA Rule 1.1.5 (Agents), the Member may direct payments in respect of business conducted by the Approved Person on behalf of the Member to an unregistered corporation, subject to the conditions specified in subsection 2.4.1(b). Subsection 2.4.1(b) of the revised Rule does not apply in Alberta and, as a result, with respect to clients in Alberta, commissions must be paid directly to the registered salesperson.
Under subsection 2.4.1(b)(iii), the Member, Approved Person and unregistered corporation are required to enter into an Agreement in writing, in a form prescribed by and in favour of the MFDA. Schedule “A” to this Notice sets out the prescribed form of the Agreement to be executed for the purpose of complying with subsection 2.4.1(b)(iii).
Implementation of New Requirements
Members who are presently directing payments to unregistered corporations in respect of business conducted by Approved Persons on their behalf have until March 26, 2011 to have the revised Agreement provided as Schedule “A” to this Notice executed by all required parties and in place. Members who wish to start directing such payments to unregistered corporations on or after March 31, 2010 must have the revised Agreement executed by all required parties and in place prior to any such payments being made.