MSN-0072

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For further information, please contact:

Paige Ward
General Counsel, Corporate Secretary and Vice President, Policy
(416) 943-5838
MSN - 0072
March 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.

Background

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.

SCHEDULE “A”

Date:

MUTUAL FUND DEALERS ASSOCIATION OF CANADA / ASSOCIATION CANADIENNE DES COURTIERS DE FONDS MUTUELS (“MFDA”)
AGREEMENT

BETWEEN:

(“Member”)

AND: (“Approved Person”)

AND: (“Payee”)

RE: Agreement made pursuant to MFDA Rule 2.4.1 (Payment of Commissions to Unregistered Corporation)

The undersigned Member, Approved Person and Payee, in accordance with the terms and conditions set out in MFDA Rule 2.4.1 that allow for payment of commissions to unregistered corporations, each hereby agree by and between themselves and with and for the benefit of the MFDA and any securities commission having jurisdiction over any of the foregoing parties as follows:

  1. The Member and Approved Person shall comply with applicable MFDA By-laws and Rules and securities legislation and remain liable to third parties, including clients, irrespective of whether any remuneration, gratuity, benefit or any other consideration is paid to the Payee and no such payment shall, in and of itself, in any way limit or affect the duties, obligations or liability of the Member or the Approved Person under MFDA Rules and applicable securities legislation;
  2. The Member shall engage in appropriate supervision with respect to the conduct of the Approved Person and the Payee to ensure such compliance as referred to in paragraph 1;
  3. The Approved Person and Payee shall make available during normal business hours to the MFDA, the Member or any securities commission in Canada having jurisdiction over the Member, their authorized officers, employees and agents, free access to, and copies thereof, all books of account, bank accounts, correspondence and records of every description of, or maintained by or on behalf of, either of them;
  4. A request made in accordance with paragraph 3 shall be for the purpose of determining compliance by the Member and/or each of the undersigned and its respective shareholders, directors, officers, employees and affiliates with the By-laws, Rules and Policies of the MFDA and applicable securities legislation, and each of the undersigned shall, and shall cause such shareholders, directors, officers and affiliates to, fully co-operate with any of the persons entitled to access to the records and other information referred to in paragraph 3 for such purpose.  In addition, any such person so entitled to access to records and information is authorized to provide or disclose the same to any securities commission or similar regulatory authority, self-regulatory organization or law enforcement agency, subject to any applicable law restricting such disclosure;
  5. The Member is receiving this agreement by each of the undersigned for itself and for the benefit of the MFDA and any applicable securities commission and the MFDA and any such securities commission shall be able to rely on this Agreement and enforce its terms without any duty or obligation to any other person, including the parties hereto;
  6. The undersigned Approved Person shall take such steps and execute such documents including acting and voting as a director, officer, shareholder or employee of the Payee as may be necessary to cause the Payee to comply with this Agreement.

DATED this day of ,

Approved Person:

Signed:

  

Payee:

Signed:

  

Member:

Signed:

  

Address where records maintained:

Telephone:

Fax:

E-mail:

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