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Bulletin #0525-M

Membership Information
MFDA Strategic Plan (2012- 2014) – New Vision and a Roadmap for Change

Contact: Ken Woodard
BULLETIN #0525 – M
Director, Communications & Membership Services
April 24, 2012
Phone: 416-943-4602
E-mail: kwoodard@mfda.ca


MFDA Bulletin

Member Information

For Distribution to Relevant Parties within your Firm

MFDA Strategic Plan (2012- 2014) – New Vision and a Roadmap for
Change

The MFDA has developed a new Strategic Plan for the period through 2014. A copy of the new
Strategic Plan is attached to this Bulletin.

The Strategic Plan sets out a new Vision focused on promoting a culture of compliance and
protecting the investing public through responsible regulation, collaboration with Members,
investors and other regulators and staff excellence. This revised Vision recognizes the increase in
the quality of Members’ supervisory practices and overall level of compliance and emphasizes
the continued importance of maintaining and promoting Member commitment to strong
compliance and risk management practices for the ultimate benefit of both the investing public
and Members.

The Strategic Plan identifies four key strategic goals: (1) enhancing collaboration with the
industry; (2) promoting investor confidence and ensuring that the MFDA continues to be an
active participant in the Canadian securities regulatory landscape; (3) continuing to pursue staff
excellence and; (4) ensuring that the MFDA continues to pursue opportunities for process
efficiencies so that the MFDA operates in a responsible and effective manner.

Highlights of some of the key initiatives in support of these strategic goals include the following:

• The MFDA will develop and implement a Member Outreach Plan to provide Members
with staff assistance and guidance in complying with their regulatory obligations.

• The MFDA will explore new methods to provide relevant and practical education and
training to more Members to ensure a better understanding of regulatory requirements.

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• The MFDA will develop and implement an Investor Outreach Plan to enhance further
collaboration with investors and promote the presence of the MFDA and its mandate to
the investing public.

• The MFDA will continue to explore opportunities to partner with other regulators on
joint industry initiatives with a view to achieving harmonization of regulatory standards
and practices.

• The MFDA will apply a risk-based approach to all regulatory processes to increase the
effectiveness of its operational activities. The MFDA will explore new methods to
increase its ability to identify, monitor and address high-risk areas.

DM#291302v1
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STRATEGIC PLAN

2012-2014

New Vision and a Roadmap for Change



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Vision Framework: 2012-2014 ………………………………………………………………….. 3
EXECUTIVE SUMMARY………………………………………………………………………….. 4
VISION 2012-2014 ………………………………………………………………………………. 4
MFDA VALUES …………………………………………………………………………………… 5
STRATEGIC GOALS AND KEY INITIATIVES………………………………………….. 5

Goal #1: Industry Collaboration ……………………………………………………….. 5
Goal #2: Investor Confidence and Regulatory Relevance ……………………. 5
Goal #3: Staff Excellence ……………………………………………………………….. 6
Goal #4: Operational Efficiencies …………………………………………………….. 6

INTRODUCTION…………………………………………………………………………………….. 7
Development Process…………………………………………………………………………… 7
Background ………………………………………………………………………………………… 8
Strategic Goal #1: Industry Collaboration………………………………………………….. 11
OUTCOMES ……………………………………………………………………………………… 12
KEY INITIATIVES ………………………………………………………………………………. 12

Member Outreach Plan ………………………………………………………………… 12
Member Education and Training Plan …………………………………………….. 12
Enhance Industry Consultation on Policy Matters …………………………….. 13
Strategic Goal #2: Investor Confidence and Regulatory Relevance………………. 14
OUTCOMES ……………………………………………………………………………………… 14
KEY INITIATIVES ………………………………………………………………………………. 15
Investor Outreach Plan…………………………………………………………………. 15
Partner with Others for Regulatory and Investor Education Initiatives….. 15
Participate in and Plan for Changes to the Future Regulatory
Landscape ………………………………………………………………………………….. 16

Strategic Goal #3: Staff Excellence ………………………………………………………….. 17
OUTCOMES ……………………………………………………………………………………… 18
KEY INITIATIVES ………………………………………………………………………………. 18

Enhance Staff Development and Education …………………………………….. 18
Ensure an Attractive and Competitive Work Environment ………………….. 19
Enhance Internal Communication Channels ……………………………………. 19

Strategic Goal #4: Operational Efficiencies ……………………………………………….. 20
OUTCOMES ……………………………………………………………………………………… 21
KEY INITIATIVES ………………………………………………………………………………. 21

Operational Assessment of Core Regulatory Processes……………………. 21
Comparison of Regulatory Processes with Other Regulators……………… 22
Enhancement of Risk Based Approach in All Regulatory Processes …… 22

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Vision Framework: 2012-2014




We will promote a culture of compliance that protects the investing public through:

Responsible Regulation

Collaboration
VISION

Staff Excellence





INDUSTRY
INVESTOR CONFIDENCE
STAFF EXCELLENCE
OPERATIONAL
COLLABORATION
and REGULATORY
EFFICIENCIES
GOAL
RELEVANCE


We must engage in
We must respond to the needs
We must equip our staff
We must continue to
Y
meaningful collaboration
and realities of the investing
with the tools and support
develop process
with the industry so that
public and play an active role
needed so that they may
efficiencies so that we
together we ensure a
within the Canadian regulatory
accomplish their roles in a
operate in a responsible
culture of compliance
landscape so that we are
professional and effective
and effective manner
recognized as an effective and
manner
STRATEG
valued regulator

Practical and balanced
Meaningful input received
Attraction and retention of
Operational processes
Rule development and
from investors
qualified staff
focused on regulatory risk
application

Investor awareness of and
Staff viewed as
Balance between Member
Awareness and
confidence in the MFDA
professional,
regulatory burden and
understanding of

knowledgeable, respectful
investor protection
regulatory requirements
Constructive relationships
and reasonable

with other regulators
Efficient allocation of
Environment for

resources
OUTCOMES
constructive dialogue and
Recognized and respected
resolution
position within the Canadian

regulatory landscape
 

Member outreach plan
Investor outreach plan
Enhance staff development
Operational assessment of

and education
core regulatory processes
Member education and
Partner with others for

training plan
regulatory and investor
Ensure an attractive and
Comparison of regulatory

education initiatives
competitive work
processes with other
Enhance industry

environment
regulators
consultation on policy
Participate in and plan for

matters
changes to the future
Enhance internal
Enhance risk-based

regulatory landscape
communication channels
approach in all regulatory
KEY INITIATIVES

processes
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EXECUTIVE SUMMARY

This Strategic Plan builds upon the previous accomplishments of the MFDA and sets out our
vision, values, core strategic goals and key initiatives for 2012-2014.
VISION 2012-2014

We will promote a culture of compliance that protects the investing public
through:
Responsible Regulation
Collaboration
Staff Excellence

We want to encourage an environment at Members that protects the investing public by fostering
compliant and ethical behavior and decision-making throughout the organization from the top
down. For a culture of compliance to exist, Members must understand and accept our role and
the Rules that we enforce and be committed and motivated to adopt strong compliance and risk
management practices. We will accomplish this through:

Responsible Regulation – We must ensure that Rules achieve their regulatory objective while
minimizing costs and disruptions to Members, and we will do so by applying and enforcing them
in a fair and reasonable manner.

Collaboration – We must collaborate with Members, investors and other regulators to develop
practical and effective regulations that require Members to act responsibly and maintain the
investing public’s trust and confidence.

Staff Excellence – We must ensure that we have highly skilled and competent staff who has
extensive knowledge and expertise of both: (i) regulatory requirements; and (ii) Member
operations and practices. We must also ensure that MFDA staff demonstrates professionalism
and is respectful in all interactions with stakeholders.
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MFDA VALUES

We believe that all our actions must be executed professionally and honestly. We have
INTEGRITY.

We believe that the best result is one that includes meaningful engagement of all stakeholders.
We COLLABORATE.

We believe that all our actions should be fair, balanced and practical while achieving appropriate
outcomes. We are REASONABLE.

STRATEGIC GOALS AND KEY INITIATIVES

We have identified four key strategic goals. If we achieve these goals, we will be successful in
achieving our overall vision of promoting a culture of compliance that protects the investing
public. These goals are: (i) enhancing collaboration with the industry; (ii) promoting investor
confidence and ensuring that we are recognized as an effective and valued regulator; (iii)
continuing to pursue staff excellence; and (iv) ensuring that we continue to pursue opportunities
for process efficiencies so that we operate in a responsible and effective manner. In pursuit of
these goals, we have identified the following supporting initiatives:
GOAL #1: INDUSTRY COLLABORATION
• Develop and implement a Member Outreach Plan
• Develop and implement a Member Education and Training Plan
• Enhance industry consultation on policy matters
GOAL #2: INVESTOR CONFIDENCE AND REGULATORY RELEVANCE
• Develop and implement an Investor Outreach Plan
• Partner with others for regulatory and investor education initiatives
• Participate in and plan for changes to the future regulatory landscape
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GOAL #3: STAFF EXCELLENCE
• Enhance staff development and education
• Ensure an attractive and competitive work environment
• Enhance internal communication channels
GOAL #4: OPERATIONAL EFFICIENCIES
• Conduct operational assessment of core regulatory processes
• Compare regulatory processes with other regulators
• Enhance risk-based approach in all regulatory processes
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INTRODUCTION

Development Process

In developing this Strategic Plan, we solicited input from all levels of MFDA staff, the Board of
Directors, Members, industry associations, investor associations and senior representatives of the
Canadian Securities Administrators (“CSA”).

MFDA senior management reviewed and considered the comments and suggestions of the
various stakeholders and identified the following key themes:

Enhanced Collaboration and Consultation

Comments indicated that the MFDA should continue to be proactive in seeking feedback and
explore new methods to consult and collaborate with stakeholders on regulatory issues and
initiatives.

Enhanced Education and Training

Comments identified enhanced education and training for Members, MFDA staff and investors
as an area for further development. Members are seeking more guidance and assistance from the
MFDA on complying with their regulatory obligations. Comments from investor associations
indicated that the MFDA should explore opportunities to become involved in investor education
initiatives. Comments from MFDA staff emphasized an interest in increasing opportunities for
skills and knowledge based training and education.

Practical and Balanced Rule Development and Application

Comments recommended that the MFDA provide additional opportunities for industry and
investors to provide feedback as part of the Rule development process. Members also suggested
that in developing, applying and enforcing the Rules, MFDA staff should adopt a more flexible
and practical approach that recognizes that the objective behind regulatory requirements may be
achieved in different but equally effective ways.

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Active Role for the MFDA in the Canadian Securities Regulatory Framework

Comments suggested that the MFDA should ensure it plays an active role in future regulatory
initiatives in Canada and continue to work with the Investment Industry Regulatory Organization
of Canada (“IIROC”) and the CSA to ensure harmonization of regulatory requirements.

MFDA senior management considered the key themes identified from the stakeholder comments
in determining the areas of focus, strategic goals and key initiatives for the next three years. We
also reviewed the strategic plans of other securities regulators in Canada and the United States
with a view to ensuring we identified and considered all relevant issues and initiatives.
Background

The early years of the MFDA focused on developing Rules and Policies and establishing our
regulatory and operating functions. Over the course of the MFDA’s development, our regulatory
functions have evolved to incorporate process efficiencies, as well as to adapt to changes in the
risk profile of the membership.

Our vision, as reflected in the past two strategic plans, focused on raising the standard of
regulation among our membership. We believe that we have been successful in raising the
standard of regulation among our membership, and this is evidenced by an increase in the quality
of our Members’ supervisory practices and the overall level of compliance exhibited by
Members. We have also distinguished ourselves as a standard-setting regulator in key areas
including suitability, leverage, product due diligence and supervisory review requirements.

While we have observed significant improvement in the overall level of compliance within the
membership, we believe that the ability to anticipate problems and prevent or mitigate them,
rather than reacting to harm already occasioned, is one of the hallmarks of an effective regulator.
The capital market is constantly evolving and innovation has resulted in increasingly complex
financial product offerings and investment strategies. Over the next three years, we intend to
expand both our compliance and enforcement risk-based assessment practices to better anticipate
new developments and emerging risks that require regulatory response in order to fulfill our
mandate of protecting both the investing public and the integrity of the industry.
 
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Our revised Vision for 2012-2014 is focused on promoting a culture of compliance and
providing value to investors, Members and the Canadian securities regulatory regime. The most
effective and efficient way to minimize risk to investors is to promote a culture of compliance
within Member firms. A culture of compliance cannot be imposed upon the membership but
must be developed within each firm from the top down. Members need to understand and accept
our role and the Rules that we enforce and need to be committed and motivated to adopt strong
compliance and risk management practices. We will work with Members to develop clear
regulatory standards, provide practical assistance and education to Members to help them
comply with their regulatory obligations and monitor and enforce these standards in a firm and
fair manner.

This Plan recognizes that we have matured as a regulator and that our focus has expanded
beyond issuing Rules and enforcing compliance with these Rules. In addition to our core
regulatory activities, there are additional functions and roles that we currently perform that we
will commit to strengthening in the 2012-2014 Plan. These functions and roles underlie our
strategic goals and key initiatives:
• Advisory – we will provide guidance to Members to assist them in complying with their
regulatory obligations.
• Education – we will provide additional opportunities for Members to enhance their
understanding of regulatory requirements.
• Regulatory Affairs – we will work together with other regulators to ensure effective
regulation and enhanced harmonization of regulatory requirements in Canada.
• Investor Confidence – we will work to instill investor confidence by providing education,
ensuring that we understand and respond to the needs and realities of investors and
providing opportunities for meaningful input.

In developing this Plan, we recognize that there is uncertainty in the capital markets with respect
to both the regulatory landscape as well as economic conditions. It is unclear what form, if any, a
national securities regulator will take. We will anticipate and plan for changes to the securities
regulatory landscape while continuing to effectively fulfill our regulatory mandate. We also
recognize that our Members are operating in an environment of increased economic volatility.
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We have developed this Plan with the objective of achieving our strategic goals with our existing
regulatory resources without adding to the cost burden on Members.
  
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Strategic Goal #1: Industry Collaboration

Collaboration means working together with the industry to develop practical and effective
regulations that require Members to act responsibly and maintain the public’s trust and
confidence. By working in partnership with Members in both the development and the
application of regulatory requirements, we will promote a culture of compliance.

The development of regulatory policy requires an understanding of the issues and challenges
facing the industry. We work with Members to ensure that regulatory requirements address risks
and protect investors while also avoiding undue regulatory burden. Ensuring that Members are
active participants in the policy development process is an important means of achieving
Member acceptance of, and compliance with, regulatory requirements, which is why industry
consultation continues to be a key component of the MFDA policy development process. Over
the past several years, we have made considerable improvements to the industry consultation
process, including the use of discussion papers soliciting preliminary comment in advance of
Rule development, extending the public comment period for material Rule proposals, and
increasing Member awareness of the activities of the MFDA Policy Advisory Committee. We
will continue to seek new ways to further improve consultation with the industry.

Effective regulation and collaboration requires more than just consultation with the industry in
the development of regulatory policy. We must also support Member compliance by providing
guidance through education and training. We will incorporate new methods of providing
assistance to Members on an individual basis through our existing regulatory processes, as well
as expanding upon our current Member education practices. Our objective is to create more
opportunities for open dialogue and discussion with Members, increase Member awareness of
the resources that are available to them from the MFDA and generally improve Member
confidence in contacting the MFDA for assistance. By engaging Members in this way, we will
obtain valuable information and insight into Member operations that will inform our regulatory
activities while also providing Members with practical training relevant to issues they face in
their day-to-day operations.
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OUTCOMES

The outcomes of increased industry collaboration will be:
Practical and Balanced Rule Development and Application: Rules minimize costs and
disruptions to Member operations while achieving their underlying investor protection
objective.
Awareness and Understanding of Regulatory Requirements: Members are more
aware and have a better understanding of regulatory requirements through engagement
and involvement in the development of regulatory policy.
Environment for Constructive Dialogue and Resolution: Members are comfortable in
seeking assistance and guidance from MFDA staff and have opportunities to discuss
issues and concerns through multiple forums.
KEY INITIATIVES

MEMBER OUTREACH PLAN

We will develop and implement a Member Outreach Plan to provide Members with staff
assistance and guidance in complying with their regulatory obligations. As part of this Plan, we
will encourage Members to contact staff to discuss issues and areas of concern and interest. We
will provide advice and assistance through in-person meetings and through specific training
sessions, workshops, tools and materials. We will also develop a process to proactively contact
Members where we anticipate MFDA guidance may be useful.

MEMBER EDUCATION AND TRAINING PLAN

We will explore new methods to provide relevant and practical education and training to more
Members to ensure a better understanding of regulatory requirements. This will include
providing interactive training sessions and workshops on specific topics of interest to Members.
We will increase accessibility to education by using technology, such as webcasts, to reach
Members in more remote locations. We will enhance efforts to promote compliance by issuing
guides containing industry best practices and training materials for Members.

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ENHANCE INDUSTRY CONSULTATION ON POLICY MATTERS

We will provide opportunities for more Members to participate at an earlier stage in the policy
development process. This will include posting draft Member Regulation Notices for comment,
preparing discussion papers for the MFDA Policy Advisory Committee before proposing
specific Rule and Policy amendments to solicit alternatives for addressing regulatory concerns
and distributing copies of draft Rules and Policies to Members at the Member Regulation
Forums.

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Strategic Goal #2: Investor Confidence and Regulatory
Relevance

In order to meet our investor protection mandate, we must understand the needs and realities of
the investing public. In our daily activities, we become aware of investor issues when responding
to complaints and inquiries and when meeting with organizations representing investor interests.
We are looking for additional opportunities to encourage investor input and to promote public
awareness of the MFDA. We will also explore opportunities to partner with other regulators to
discuss issues related to investors and participate in investor education initiatives.

We recognize that the MFDA is part of a larger regulatory framework and that many of the
regulatory issues and concerns that must be addressed require cooperation and coordination with
other regulators. Over the past several years, we have worked with the CSA and IIROC on joint
regulatory initiatives to create a more effective, harmonized and coordinated regulatory
environment. We will continue to actively participate in such projects and expand our working
relationships with other regulators to improve Member oversight to share regulatory practices
and to be aware of their priorities and initiatives.

The Canadian regulatory landscape continues to evolve. We must be an active participant in
future developments by contributing our specialized knowledge and expertise to the discussion.
As circumstances change, we must plan for and analyze the impact of any potential
developments on the MFDA, its Members and investors.
OUTCOMES

The outcomes of investor confidence and regulatory relevance will be:
Meaningful Input Received from Investors: By creating additional opportunities to
obtain investor feedback, MFDA regulatory activities reflect the needs of investors.
Investor Awareness of and Confidence in the MFDA: Investors have greater
awareness of the MFDA and recognize the MFDA as protecting their interests.
Constructive Relationships with Other Regulators: Greater communication and
interaction with other regulators promote a harmonized approach on regulatory matters
Page 14 of 22

and opportunities for greater coordination of policy, compliance and enforcement
activities. The MFDA has positive working relationships with other regulators, sharing
information and expertise on a regular basis.
Recognized and Respected Position within the Canadian Regulatory Landscape:
The MFDA is viewed by stakeholders as a meaningful and valuable contributor to the
Canadian securities regulatory regime.

KEY INITIATIVES

INVESTOR OUTREACH PLAN

We will develop and implement a plan to enhance further collaboration with investors to
promote the presence of the MFDA and its mandate to the investing public. We will formalize a
process to obtain input from investor groups on MFDA policy initiatives. We will also monitor
the activities of the investor advisory groups established by provincial securities commissions to
understand their perspectives and priorities.

We will develop additional materials for the public to explain who we are and what we do. We
will enhance MFDA communications to provide investors with more meaningful information
and educational resources and ensure that we optimize their points of contact with us.

PARTNER WITH OTHERS FOR REGULATORY AND INVESTOR EDUCATION INITIATIVES

We will continue to explore opportunities to partner with other regulators on joint industry
initiatives with a view to achieving harmonization of regulatory standards and practices.
Partnering with other regulators on joint initiatives will also help to ensure a comprehensive and
coordinated approach to address regulatory issues.

We will increase communication and contact with other regulators to share information on
regulatory processes, emerging trends and issues that cross jurisdictional boundaries.

We will seek opportunities to participate in investor education initiatives of other regulators. We
will also communicate with dispute resolution services to ensure a consistent and harmonized
approach to addressing investor complaints.
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PARTICIPATE IN AND PLAN FOR CHANGES TO THE FUTURE REGULATORY LANDSCAPE

The regulatory landscape in Canada will continue to change and evolve in the next few years.
We will continue to monitor these developments and anticipate and assess their impact on the
MFDA and MFDA Members.
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Strategic Goal #3: Staff Excellence

We recognize that recruiting and retaining well-qualified, professional and motivated staff is
essential to effectively fulfill our regulatory mandate. We are committed to maintaining a
competitive work environment that attracts, retains, motivates and engages employees.

We want MFDA staff to recognize how their work positively contributes to the MFDA’s success
in achieving its mandate and strategic goals. Employee engagement is fundamental to ensuring
job satisfaction and high-quality work. To this end, we have conducted employee surveys and
established employee focus groups to develop recommendations to address areas for
improvement identified through the survey results. These recommendations have formed the
basis for our key initiatives aimed at enhancing job satisfaction and maintaining a positive work
environment.

Employee development and education is an ongoing investment, which contributes to our
success as a regulator. To ensure proficient staff, we will continue to evaluate skill and
knowledge requirements for staff with a view to targeting training in specific areas. We will
ensure that staff is knowledgeable and well informed of Member operations and able to exercise
reasonable judgment in assessing the application of regulatory requirements to various business
models. We must also ensure that, as the industry evolves and new regulatory issues emerge,
staff skills and competencies remain current.

Ensuring open and meaningful communication throughout all levels of the organization was a
theme underlying many of the recommendations of staff. We will continue to identify ways to
enhance channels of communication to ensure that employees are engaged and informed on key
issues of importance to them. We will also focus training efforts on equipping managers with
tools to deliver more frequent and effective employee performance feedback in an atmosphere of
mutual respect and understanding that improves performance and enhances the working
relationship.

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In carrying out our regulatory activities, we also recognize the value and importance of
encouraging constructive communication with Members. A further component of training will
involve enhancing staff communication skills for interactions with Members.
OUTCOMES

The outcomes of staff excellence will be:
Attraction and Retention of Qualified Staff: The MFDA continues to attract and
retain highly skilled, competent and professional staff invested in the success of the
MFDA.
Staff Viewed as Professional, Knowledgeable, Respectful and Reasonable:
MFDA staff continues to be viewed as having extensive knowledge and expertise of
both: (i) regulatory requirements; and (ii) Member operations and practices, as
reflected in positive feedback from Members. MFDA staff demonstrates
professionalism and is respectful in all interactions with stakeholders.
KEY INITIATIVES

ENHANCE STAFF DEVELOPMENT AND EDUCATION

An increased focus will be placed on management training with respect to coaching and
performance-related communications to staff. We will review the MFDA’s performance
evaluation process to ensure that it remains an effective tool to provide meaningful feedback to
employees. Management training will focus on enhancing communication skills to ensure that
performance-related feedback is delivered in an atmosphere of mutual respect and
professionalism. The MFDA will develop a more unified approach to staff training that will see
the formulation of an organization-wide training plan. This plan will leverage the training
investment made by various departments by extending the availability of training opportunities
to all suitable staff members.

Understanding and appreciating the realities of the environment in which our membership
operates will become a key focus of MFDA staff training. Staff will operate more effectively
Page 18 of 22

through an enhanced understanding of Member operations and by adopting practical, fair and
flexible approaches to achieve desired outcomes.

ENSURE AN ATTRACTIVE AND COMPETITIVE WORK ENVIRONMENT

The MFDA has been very successful in attracting and retaining quality employees to date and
will maintain its efforts in this regard. We will continue to benchmark our compensation and
employee benefit programs, including training, to other industry regulators and peer
organizations in order to ensure our competiveness with respect to employee attraction, retention
and development.

ENHANCE INTERNAL COMMUNICATION CHANNELS

A key element to any company’s successful accomplishment of its organizational objectives is
effective use of its communication channels to its employees. We will enhance existing lines of
communication and identify new methods for disseminating information and obtaining employee
input and feedback. This will include the redesign of the MFDA intranet to make it easier for
employees to navigate and find relevant information. Feedback mechanisms, such as topic-
specific surveys, focus groups and other intake means, will be developed and used to gather
employee feedback beyond the traditional periodic staff satisfaction survey that has been used in
the past.

Page 19 of 22

Strategic Goal #4: Operational Efficiencies

The MFDA’s core regulatory functions are designed to prevent, detect and address regulatory
violations in the most efficient and effective manner in order to minimize risk to the public. We
regularly review our regulatory processes with a view to enhancing our risk-based methodology
which is used to allocate resources in the most value-added manner to achieve positive outcomes
of compliance. We compare our processes against other securities regulators to identify areas for
improvement and to assess whether they appropriately reflect the risks of the MFDA
membership and achieve the MFDA’s mandate.

Preventing violations before they occur is clearly preferable. While proactive steps can be taken
through our Member education and training efforts, further preventative measures can be
obtained through an effective policy development process. MFDA Rules and Policies need to be
clearly written; easily understood; able to be reasonably implemented by Members; and should
minimize costs and disruptions to Member operations while accomplishing the underlying
objective of investor protection. Regular reviews of our existing Rules, their interpretation and
application and the policy development process are necessary to confirm that these results are
being achieved and to determine whether there are alternative approaches to satisfying the
objective of a regulatory requirement that should be considered.

Our compliance and enforcement processes must also be designed to detect and address
violations promptly to limit potential harm to investors. We will continue to develop process
efficiencies by performing comprehensive reviews of our compliance and enforcement practices.
This will involve a thorough assessment of the examination cycle, program, scheduling, and
reporting/rectification process and of the case assessment, investigation and litigation functions.
Our enhancements will be focused on further incorporating a risk-based methodology into our
processes and developing procedures to improve more timely rectification of findings. We will
target our regulatory activities on high risk practices, as well as investors who are the most
vulnerable to abuse, such as seniors.

We will also research methods to evaluate the effectiveness of our regulatory processes to assess
our success in accomplishing our regulatory mandate.
Page 20 of 22

OUTCOMES

The outcomes of operational efficiencies will be:
Operational Processes Focused on Regulatory Risk: Our processes are targeted to
address high risk practices and vulnerable investors where there is the greatest potential
for investor harm.
An Appropriate Balance between Member Regulatory Burden and Investor
Protection: Regulatory operations and processes are reasonable in that they address risks
and protect investors while minimizing costs and disruptions to the industry.
Efficient Allocation of Resources: The MFDA uses its resources in an effective manner
to achieve maximum productivity and enhance investor protection.
KEY INITIATIVES

OPERATIONAL ASSESSMENT OF CORE REGULATORY PROCESSES

We will review all of our operational processes to ensure that we utilize our resources in the
most efficient and effective manner possible. As part of this plan, we will review our
Compliance, Enforcement, and Policy Departments for potential efficiencies that could be
realized through revised processes, IT support, additional training and other means.

We will explore additional methods to identify and proactively address non-compliance at an
early stage, through Member education and training, and development of new procedures in the
examination and enforcement processes to avoid or minimize the occurrence of harm. We will
also examine our procedures for obtaining information from Members in order to ensure that the
scope of our information requests is appropriate and to identify ways to increase coordination
between departments and avoid duplication.

We will review our policy structure to ensure that the regulatory effect of the various policy
instruments that we issue is clearly understood by Members. In addition, we will continue to
assess on an ongoing basis whether our existing regulatory requirements and their interpretation
and application achieve their objectives and consider whether there may be alternative
approaches to compliance that may be equally or more efficient and effective.
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COMPARISON OF REGULATORY PROCESSES WITH OTHER REGULATORS

In reviewing our own operational processes, we must remain aware of different approaches and
practices used by other securities regulators. In this regard, we will continue to investigate the
practices of other regulators to identify areas for process improvement. We will review the
practices of other regulators to find new or better ways to perform our functions more efficiently
and effectively.

ENHANCEMENT OF RISK BASED APPROACH IN ALL REGULATORY PROCESSES

Applying a risk-based approach to all of our regulatory processes will allow us to increase the
effectiveness of our operational activities. We will explore new methods to increase our ability to
identify, monitor and address high risk areas.

We will change our sales examination cycle to differentiate Members based on risk, which will
result in Members requiring regulatory attention being examined more frequently. We will also
expand the use of targeted exams to focus on specific risk areas and work with Members to
implement timely corrective action. We will streamline the sales examination program to narrow
its focus and will address compliance with requirements providing less significant investor
protection value through other means. In an effort to facilitate timely corrective action, we will
develop tools, education and guidance to assist Members in addressing deficiencies identified in
sales compliance examinations.

We will streamline our enforcement procedures for gathering information from Members with a
view to relying more frequently on Member investigative efforts. We will develop methods to
more efficiently address minor violations. We will adjust our risk-based approach to place a
focus on issues affecting seniors. We will develop additional procedures to address high risk
situations, including expedited “fast track” processes for handling serious cases and methods of
addressing situations of ongoing harm. We will investigate new methods to detect violations,
including more effective means of analyzing Member Event Tracking System (“METS”) and
complaints data and the development of a “whistleblower” policy. We will explore methods to
proactively resolve systemic issues at Members.
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