IN THE MATTER OF A SETTLEMENT HEARING PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA
Re:
Settlement Agreement
Settlement Agreement
File No. 200929
IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA
Re: Worldsource Financial Management Inc.
SETTLEMENT AGREEMENT
I. INTRODUCTION
1.
By Notice of Settlement Hearing, the Mutual Fund Dealers Association of Canada
(the “MFDA”) announced that it proposed to hold a hearing to consider whether,
pursuant to section 24.4 of By-law No. 1, a hearing panel of the MFDA Central Regional
Council (the “Hearing Panel”) should accept the settlement agreement (the “Settlement
Agreement”) entered into between Staff of the MFDA (“Staff”) and the Respondent
Worldsource Financial Management Inc. (the “Respondent”).
II. JOINT
SETTLEMENT RECOMMENDATION
2.
Staff conducted an investigation of the Respondent’s activities. The investigation
disclosed that the Respondent had engaged in activity for which the Respondent could be
penalized on the exercise of the discretion of the Hearing Panel pursuant to s. 24.1 of
By-law No.1.
3.
Staff and the Respondent recommend settlement of the matters disclosed by the
investigation in accordance with the terms and conditions set out below. The Respondent
agrees to the settlement on the basis of the facts set out in Part IV herein and consents to
the making of an Order in the form attached as Schedule “A”.
4.
Staff and the Respondent agree that the terms of this Settlement Agreement,
including the attached Schedule “A”, will be released to the public only if and when the
Settlement Agreement is accepted by the Hearing Panel.
III. ACKNOWLEDGEMENT
5.
Staff and the Respondent agree with the facts set out in Part IV herein for the
purposes of this Settlement Agreement only and further agree that this agreement of facts
is without prejudice to the Respondent or Staff in any other proceeding of any kind
including, but without limiting the generality of the foregoing, any proceedings brought
by the MFDA (subject to paragraph 45) or any civil or other proceedings which may be
brought by any other person or agency, whether or not this Settlement Agreement is
approved by the MFDA.
IV. AGREED
FACTS
Registration History
6.
The Respondent is registered as a Mutual Fund Dealer in all 10 Canadian
provinces and as an Exempt Market Dealer in the provinces of Ontario and
Newfoundland and Labrador.
7.
The Respondent became a Member of the MFDA on May 10, 2002.
The 2004 MFDA Compliance Examination
8.
In July 2004, the MFDA completed its first compliance examination of the
Respondent (the “2004 Examination”) which included an assessment of compliance by
the Respondent with MFDA By-laws, Rules and Policies for the period from
February 1, 2003 to January 31, 2004. The 2004 Examination included a review of the
Respondent’s head office as well as 3 branch locations. The findings of the 2004
Examination were reported to the Respondent in the MFDA Compliance Examination
Report dated July 5, 2004 (the “2004 MFDA Report”).
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9.
The 2004 MFDA Report identified, among other things, deficiencies relating to
the Respondent’s failure to establish and implement adequate procedures and controls in
the following areas:
(a) Approval of new accounts;
(b) Completeness and approval of KYC information and amendments; and
(c) Excessive trading or switching by Approved Persons in client accounts.
(these three deficiencies are collectively referred to below as the “Deficiencies”)
10.
The MFDA required the Respondent to describe the steps it had taken, or intended
to take, to address all of the deficiencies identified in the 2004 MFDA Report.
11.
Between August 2004 and December 2004, the MFDA and the Respondent
exchanged communications regarding the Respondent’s plans to address the deficiencies
in the 2004 MFDA Report.
12.
The plans included changes to the Respondent’s policies and procedures.
The 2006 Compliance Examination
13.
In January, 2006, the MFDA undertook a second compliance examination of the
Respondent (the “2006 Examination”) which included an assessment of compliance by
the Respondent for the period from February 1, 2004 to December 31, 2005. The 2006
Examination included a review of the Respondent’s head office as well as 3 branch
locations. The findings of the 2006 Examination were reported to the Respondent in the
MFDA Compliance Examination Report dated May 26, 2006 (the “2006 MFDA
Report”).
14.
The 2006 MFDA Report identified, among other things, the Deficiencies that
were previously identified in the 2004 MFDA Report which had not been fully remedied.
15.
The 2006 MFDA Report also identified a pattern of excessive trading conducted
by Leo O’Brien, an Approved Person who was subsequently the subject of an MFDA
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disciplinary proceeding.1 Mr. O’Brien was terminated by the Respondent on
September 1, 2006.
16.
MFDA Compliance Staff referred the results of the 2006 MFDA Report to MFDA
Enforcement Staff for possible disciplinary action.
Agreement and Undertaking
17.
On April 20, 2007, in consideration of the MFDA foregoing enforcement action,
the Respondent signed an Agreement and Undertaking with the MFDA (the “2007
Agreement”) in which the Respondent agreed to:
(a) Develop and implement an action plan (the “Action Plan”) to remedy:
(i) the Deficiencies; and
(ii) certain other deficiencies that had been identified in the 2006 MFDA
examination report such as the requirement to properly identify all leveraged
accounts on the Respondent’s back office system and the obligation to ensure that
each client who borrowed money to invest received a copy of an appropriately
worded leverage disclosure document; and
(b) Retain an independent consultant (the “Consultant”) at its own expense to test
whether the deficiencies described in paragraph 17(a) above had been rectified,
identify any new deficiencies and report its findings to the MFDA.
18.
The Action Plan that the Respondent prepared to address the Deficiencies
required the Respondent to produce certain reports and implement desk audit processes
designed to enable the Respondent’s compliance staff, through a sampling process, to:
(a) review for timely approval of new accounts and KYC amendments;
(b) confirm that the KYC information including KYC amendments are
accurately recorded on its back office system; and
1 On May 15, 2008, the MFDA issued a Notice of Hearing against O’Brien. The allegations concerned
excessive trading by O’Brien who had processed 166 switches in 22 client accounts over a 14 month period
between April 2005 and June 2006 using limited trading authorizations without obtaining instructions from
clients. By Order of the Hearing Panel dated November 25, 2008, O’Brien received a lifetime ban from the
mutual fund industry and was ordered to pay a fine of $60,000 and costs of $5,000.
Page 4 of 21
(c) identify possible patterns of excessive trading by its Approved Persons.
19.
The Consultant retained by the Respondent completed testing in August 2007 and
submitted a report to the MFDA dated September 28, 2007 (the “Consultant’s Report”)
outlining its findings and recommendations.
20.
The Consultant’s Report revealed that although the Respondent had implemented
some new procedures in accordance with the Action Plan, the Respondent’s new
procedures were insufficient to satisfactorily address the Deficiencies.
21.
The Respondent did not initially request a copy of the Consultant’s Report. In
November 2007, after the MFDA opened an investigation concerning the findings in the
Consultant’s Report, the Respondent requested and obtained a copy of the report.
22.
On March 25, 2008, during the course of its investigation, MFDA Enforcement
Staff conducted an on-site examination of the Respondent to determine whether the
Deficiencies were resolved during the four months following the end of the period
examined by the Consultant. The examination covered the period from
September 1, 2007 to December 31, 2007. MFDA Enforcement Staff did not report their
findings to the Respondent following the examination. MFDA Staff identified the
following issues during their testing:
(a) Desk audits did not contain evidence of timely review, details of follow-up on
issues identified, details of resolution of issues identified, or timely follow-up on
information requested from Branch Managers/Approved Persons; and
(b) The Respondent was not producing some of the reports that it had agreed in the
Action Plan to produce to review for excessive trading.
Bulk Transfer of Coast Capital Investments’ Accounts
23.
On March 4, 2008, the MFDA received a request from Coast Capital Investments
for approval to transfer its client accounts and Approved Persons to the Respondent.
24.
By letter dated March 17, 2008, the MFDA provided written confirmation to the
Respondent that the MFDA was not prepared to approve the proposed transaction as a
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result of outstanding compliance issues at the Respondent. The MFDA further advised
that once the compliance issues had been satisfactorily addressed, it would reconsider the
application.
25.
In response, the Respondent informed the MFDA that the Respondent had
implemented additional new procedures to address the Deficiencies. The Respondent
revised the Action Plan to incorporate its additional new procedures and agreed to retain
the Consultant to complete further testing and report to the MFDA.
26.
On April 4, 2008, the Consultant completed further testing covering the period
from January 1, 2008-February 28, 2008.
27.
On April 6, 2008, the Consultant submitted a report to the MFDA (the “2008
Consultant’s Report”). The Consultant’s Report stated that since the Consultant’s first
examination, the Respondent had made marked improvements in its desk audit processes,
tracking and follow through. However, the Consultant’s testing revealed that the
Respondent had not sufficiently resolved the Deficiencies and had not complied fully
with the requirements in the Action Plan in that:
(a) Desk audit procedures, designed to review for:
(i) timely approval of new accounts and KYC amendments; and
(ii) completeness of KYC information and amendments
were not being conducted bi-weekly in accordance with the requirements of the
Action Plan which resulted in a backlog;
(b) the Respondent had developed but not yet implemented all of the reports agreed
to in the Action Plan to review for excessive trading; and
(c) Desk audit procedures were not always performed at the same frequency or within
the established sample sizes agreed to in the Action Plan.
Letter from Officers Of The Respondent
28.
On April 28, 2008, senior officers of the Respondent signed a letter confirming
that the issues described in the 2008 Consultant’s Report had been resolved as follows:
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(a) The backlog in desk audits identified by the Consultant had been cleared;
(b) The monitoring for excessive trading now included all of the reports described in
the 2008 Consultant’s Report; and
(c) Desk audits were being conducted at the same frequency and within the
established sample sizes agreed to in the Action Plan.
29.
In consideration of the representations in the April 28, 2008 letter from the
Respondent’s senior officers stating that issues raised in the 2008 Consultant’s Report
had been resolved, the MFDA approved the Coast Capital transaction subject to terms
and conditions.
The 2009 Compliance Examination
30.
In January 2009, the MFDA undertook a third compliance examination of the
Respondent (the “2009 Examination”) which included an assessment of compliance by
the Respondent for the period from February 1, 2006 to November 30, 2008. The 2009
Examination included a review of the Respondent’s head office as well as 4 branch
locations. The findings of the 2009 Examination were reported to the Respondent in the
MFDA Compliance Examination Report dated May 25, 2009 (the “2009 MFDA
Report”).
31.
The 2009 MFDA Report identified, among other things, that:
(a) although the Respondent had implemented many of the procedures that were
described in the Action Plan, the Respondent:
(i) had not sufficiently resolved the Deficiencies that were previously identified
in the 2004 and 2006 MFDA Reports;
(ii) was not producing one of the three reports that were agreed to in the Action
Plan and described in the 2008 Consultant’s Report to identify cases of
excessive trading; and
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(iii)was not taking sufficient follow-up action to ensure that cases of
non-compliance with regulatory requirements that were identified by means of
the desk audits were not repeated;
(b) the Respondent was not maintaining sufficient evidence of its head office or
branch level trade supervision activities for the duration of the period
examined; and
(c) Staff had discovered additional patterns of possible excessive trading by certain
Approved Persons of the Respondent.
32.
The cases of possible excessive trading identified in the 2009 MFDA Report
would have appeared on reports that the Action Plan required the Respondent to produce
to monitor for excessive trading if all of those reports had been developed and
implemented in accordance with the Action Plan. These cases should have also been
reviewed and queried by the Respondent to determine whether such trading patterns did
constitute excessive trading.
Additional Facts
33.
The Respondent has cooperated with the MFDA’s investigation of the matters
that form the subject-matter of this Settlement Agreement.
34.
Following discussions with MFDA Staff upon the completion of the 2009
Compliance Examination, the Respondent acknowledged its failure to rectify the
Deficiencies. Prior to the commencement of enforcement action by the MFDA, the
Respondent took the following additional steps to try to rectify the Deficiencies:
(i) the Respondent voluntarily retained PricewaterhouseCoopers LLP (“PwC”) in
April, 2009 to assist it with rectifying the remaining Deficiencies at a cost to
date of $225,000;
(ii) the Respondent undertook an independent review of its compliance structure
and resources; and
(iii) the Respondent developed and implemented additional changes to its systems
and controls.
Page 8 of 21
V. CONTRAVENTIONS
35.
The Respondent admits that it failed to fully carry out the terms of the 2007
Agreement, thereby engaging the authority of the Hearing Panel to impose a penalty on
the Respondent pursuant to section 24.1.2(i) of MFDA By-law No. 1.
36.
The Respondent admits that between February 1, 2003 and November 30, 2008, it
failed to establish, implement and maintain adequate policies and procedures to address
the Deficiencies by:
(a) ensuring the accuracy, completeness and approval of all KYC information and
amendments; contrary to MFDA Rules 2.2.1, 2.2.4, 2.5.3(b), 2.5.4 and
MFDA Policy No. 2;
(b) ensuring that appropriate supervisory staff were completing the timely review and
approval of the opening of all new client accounts, contrary to MFDA Rules
2.2.3, 2.5.2(b), 2.5.3(b), 2.5.4 and MFDA Policy No. 2; and
(c) detecting and preventing patterns of excessive trading and switching in client
accounts, contrary to MFDA Policy No. 2.
37.
The Respondent admits that between January 1, 2006 and November 30, 2008,
the Respondent failed to maintain adequate records of trade supervision that was
conducted at both the branch and head office level, including trades reviewed and records
of inquiries made, responses received and resolutions achieved, contrary to MFDA Rules
2.2.1, 2.5.1, 2.5.4 and MFDA Policy No. 2.
VI.
TERMS OF SETTLEMENT
38.
The Respondent agrees to the following terms of settlement:
(a) The Respondent shall pay a fine in the amount of $50,000, pursuant to section
24.1.2(b);
(b) The Respondent shall retain PwC as an independent monitor at the Respondent’s
expense and in accordance with the terms set out in Schedule “B” to resolve:
(i)
the Deficiencies;
Page 9 of 21
(ii) all other compliance deficiencies identified in the 2009 MFDA Report; and
(iii) any deficiencies that the independent monitor identifies during its review;
pursuant to section 24.1.2(g) of MFDA By-law No. 1;
(c) The Respondent shall pay the costs of this investigation and proceeding in the
amount of $25,000, pursuant to section 24.2 of MFDA By-law No. 1.
39.
In accordance with s. 24.4.2(b) of MFDA By-law No. 1, the Respondent
acknowledges its obligations to comply with all MFDA By-laws, Rules and Policies, and
all applicable securities legislation and regulations made thereunder and to carry out the
terms of agreements with the MFDA in the future and in particular the obligation to
implement sufficient compliance procedures and controls to ensure compliance with
MFDA Rules 2.2, 2.5 and MFDA Policy No. 2.
VII. STAFF
COMMITMENT
40.
If this Settlement Agreement is accepted by the Hearing Panel, Staff will not
initiate any proceeding under the By-laws of the MFDA against the Respondent in
respect of the facts set out in Part IV and contraventions described in Part V of this
Settlement Agreement, subject to the provisions of paragraph 45 below. Nothing in this
Settlement Agreement precludes Staff from investigating or initiating proceedings in
respect of any facts and contraventions that are not set out in Parts IV and V of this
Settlement Agreement or in respect of conduct of the Respondent that occurred outside
the specified date ranges of the facts and contraventions set out in Parts IV and V,
whether known or unknown at the time of settlement. Furthermore, nothing in this
Settlement Agreement shall relieve the Respondent from fulfilling any continuing
regulatory obligations.
VIII. PROCEDURE FOR APPROVAL OF SETTLEMENT
41.
Acceptance of this Settlement Agreement shall be sought at a hearing of the
Central Regional Council of the MFDA on a date agreed to by counsel for Staff and the
Respondent.
Page 10 of 21
42.
Staff and the Respondent may refer to any part, or all, of the Settlement
Agreement at the settlement hearing. Staff and the Respondent also agree that if this
Settlement Agreement is accepted by the Hearing Panel, it will constitute the entirety of
the evidence to be submitted respecting the Respondent in this matter, and the
Respondent agrees to waive its rights to a full hearing, a review hearing before the Board
of Directors of the MFDA or any securities commission with jurisdiction in the matter
under its enabling legislation, or a judicial review or appeal of the matter before any court
of competent jurisdiction.
43.
Staff and the Respondent agree that if this Settlement Agreement is accepted by
the Hearing Panel, then the Respondent shall be deemed to have been penalized by the
Hearing Panel pursuant to s. 24.1.2 of By-law No. 1 for the purpose of giving notice to
the public thereof in accordance with s. 24.5 of By-law No. 1.
44.
Staff and the Respondent agree that if this Settlement Agreement is accepted by
the Hearing Panel, neither Staff nor the Respondent will make any public statement
inconsistent with this Settlement Agreement. Nothing in this section is intended to
restrict the Respondent from making full answer and defence to any civil or other
proceedings against it.
45.
If this Settlement Agreement is accepted by the Hearing Panel and, at any
subsequent time, the Respondent fails to comply with any of the terms of the Settlement
Agreement, including the Terms of the Independent Monitor, Staff reserves the right to
bring proceedings under the By-laws of the MFDA against the Respondent and any of its
officers or directors based on, but not limited to, the facts set out in Part IV of the
Settlement Agreement, as well as the breach of the Settlement Agreement. If such
additional enforcement action is taken, the Respondent agrees that the proceeding(s) may
be heard and determined by a hearing panel comprised of all or some of the same
members of the hearing panel that accepted the Settlement Agreement, if available.
46.
If, for any reason whatsoever, this Settlement Agreement is not accepted by the
Hearing Panel or an Order in the form attached as Schedule “A” is not made by the
Hearing Panel, Staff and the Respondent will be entitled to any available proceedings,
Page 11 of 21
remedies and challenges, including proceeding to a disciplinary hearing pursuant to
sections 20 and 24 of By-law No. 1, unaffected by this Settlement Agreement or the
settlement negotiations.
47.
Whether or not this Settlement Agreement is accepted by the Hearing Panel, the
Respondent agrees that it will not, in any proceeding, refer to or rely upon this Settlement
Agreement or the negotiation or process of approval of this Settlement Agreement as the
basis for any allegation against the MFDA of lack of jurisdiction, bias, appearance of
bias, unfairness, or any other remedy or challenge that may otherwise be available.
IX.
DISCLOSURE OF AGREEMENT
48.
The terms of this Settlement Agreement will be treated as confidential by the
parties hereto until accepted by the Hearing Panel, and forever if, for any reason
whatsoever, this Settlement Agreement is not accepted by the Hearing Panel, except with
the written consent of both the Respondent and Staff or as may be required by law.
49.
Any obligations of confidentiality shall terminate upon acceptance of this
Settlement Agreement by the Hearing Panel.
X.
EXECUTION OF SETTLEMENT AGREEMENT
50.
This Settlement Agreement may be signed in one or more counterparts which
together shall constitute a binding agreement.
51.
A facsimile copy of any signature shall be effective as an original signature.
Dated: July 8, 2010
“Linda Kenny”
“Andrew
Mitchell”
Witness – Signature
Worldsource Financial Management Inc.
Per: Andrew Mitchell, President
Per “Shaun Devlin”
Staff of the MFDA
Per: Shaun Devlin
Vice-President, Enforcement
Doc 218834
Page 12 of 21
File No. 200929
IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1 OF
THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA
Re: Worldsource Financial Management Inc.
ORDER
WHEREAS on July , 2010, the Mutual Fund Dealers Association of Canada
(the “MFDA”) issued a Notice of Settlement Hearing pursuant to section 24.4 of By-law
No. 1 in respect of Worldsource Financial Management Inc. (the “Respondent”);
AND WHEREAS the Respondent entered into a settlement agreement with Staff
of the MFDA, dated [date] (the “Settlement Agreement”), in which the Respondent
agreed to a proposed settlement of matters for which the Respondent could be disciplined
pursuant to ss. 20 and 24.1 of By-law No. 1;
AND
WHEREAS
the Hearing Panel is of the opinion that the Respondent has
failed to carry out an agreement with the MFDA to rectify compliance deficiencies and
has failed to fulfill its obligations to comply with MFDA Rules 2.2.1, 2.2.3, 2.2.4, 2.5.1,
2.5.2(b), 2.5.3(b), 2.5.4 and MFDA Policy No. 2;
IT IS HEREBY ORDERED THAT the Settlement Agreement is accepted, as a
consequence of which:
1.
The Respondent shall pay a fine in the amount of $50,000, pursuant to section
24.1.2(b).
Page 13 of 21
2.
The Respondent shall retain PricewaterhouseCoopers LLP as an independent
monitor at the Respondent’s expense and in accordance with the terms set out in
Schedule “B” to the Settlement Agreement to resolve:
(i) the Deficiencies (as defined in the Settlement Agreement);
(ii) all other compliance deficiencies identified in the 2009 MFDA Report; and
(iii)any deficiencies that the independent monitor identifies during its review;
pursuant to section 24.1.2(g) of MFDABy-law No. 1;
3.
The Respondent shall pay the costs of this investigation and proceeding in the
amount of $25,000, pursuant to section 24.2 of MFDA By-law No. 1.
DATED this
day of July, 2010.
Per: _____________
[Name of Public Representative], Chair
Per: _____________
[Name of Industry Representative]
Per: ______________
[Name of Industry Representative]
Page 14 of 21
Schedule “B”
Terms of Monitor
File No. 200929
IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1
OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA
Re: Worldsource Financial Management Inc.
TERMS OF THE INDEPENDENT MONITOR
1. In accordance with the terms of the Settlement Agreement dated July 8, 2010 between
Worldsource Financial Management Inc. (the “Member”) and the Mutual Fund
Dealers Association of Canada (the “MFDA”) (the “Settlement Agreement”), and the
Order of the Hearing Panel dated [date] arising therefrom (the “Order”), the Member:
a. Shall establish and implement adequate procedures and controls to resolve the
following deficiencies (the “Deficiencies”):
i. the failure of the Member to ensure the approval of all new accounts;
ii. the failure of the Member to ensure the accuracy, completeness and approval
of KYC information and amendments; and
iii. the failure of the Member to implement appropriate supervisory procedures to
detect and prevent excessive trading or switching in client accounts;
iv. the failure of the Member to maintain adequate records of trade supervision
that was conducted at both the branch and head office level, including trades
reviewed and records of inquiries made, responses received and resolutions
achieved; and
v. all deficiencies identified in the 2009 MFDA Compliance Examination Report
dated May 25, 2009.
b. Has retained PricewaterhouseCoopers LLP (“PwC”) as an independent consultant
(the “Monitor”) at the Member’s expense, to assist in resolving all of the
Deficiencies on the following terms:
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i. The Member has executed a retainer with the Monitor incorporating the
requirements of the Duties and Standards of the Independent Monitor attached
hereto as Appendix “1” (the “Duties and Standards”) and provided a copy of
the retainer to MFDA Staff (“Staff”)
ii. The Member will fully co-operate with and provide full disclosure to the
Monitor in a timely manner of all matters and information relevant to the
activities of the Monitor hereunder and in accordance with the terms and
conditions of the Duties and Standards; and
iii. Staff has approved the selection of the Monitor and the terms of the Member’s
retainer of the Monitor.
c. Shall resolve all of the Deficiencies in accordance with the terms and conditions
of the Duties and Standards and on the following terms:
i. The Member shall cause the Monitor to develop, in collaboration with the
Member, a written plan containing proposed actions (and timeframes for
implementation of the actions) to remedy the Deficiencies (the “Action
Plan”). The Action Plan shall be delivered to Staff, for its approval, by no
later than [To Be Agreed Upon By The MFDA And The Monitor
Following Approval Of The Settlement];
ii. Staff reserves the right to add, delete or change any part of the Action Plan
provided that the Member is given a reasonable opportunity to comment on
any such addition, deletion or change. Any changes made by Staff become
part of the Action Plan;
iii. The Member, with the assistance and participation of the Monitor, shall fully
implement the actions identified in the Action Plan within the time frames set
out therein. The Monitor must review and approve all such actions as being
consistent with the Action Plan prior to their implementation. The Monitor
may consult informally with the MFDA from time to time on any issues
arising from the implementation of the Action Plan;
iv. The Member shall cause the Monitor to assess the sufficiency of the
Member’s compliance department (the “Compliance Department”), including
the number, experience and proficiency of staff, and the internal education
and training programs, to ensure that the Member will comply with the
implemented Action Plan and the MFDA By-laws, Rules and Policies, and
make and provide to the MFDA and the Member its recommendations to
address any deficiencies (the “Compliance Department Recommendations”).
The Compliance Department Recommendations shall be delivered to Staff ,
for its approval, by no later than [To Be Agreed Upon By The MFDA And
The Monitor Following Approval Of The Settlement];
v. Staff reserves the right to add, delete or change any part of the Compliance
Department Recommendations provided that the Member is given a
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reasonable opportunity to comment on any such addition, deletion or change.
Any change made by Staff become part of the Compliance Department
Recommendations;
vi. The Member, with the assistance and participation of the Monitor, shall fully
implement the actions identified in the Compliance Department
Recommendations within the time frames set out therein. The Monitor must
review and approve all such actions as being consistent with the Compliance
Department Recommendations prior to their implementation. The Monitor
may consult informally with the MFDA from time to time on any issues
arising from the implementation of the Compliance Department
Recommendations;
vii. The Monitor shall discuss with the MFDA and may discuss with the Member,
its proposed procedures for testing the Member’s implementation of the
Action Plan and thereafter submit written proposals for testing procedures,
time frame for completion of testing and format for a report to the MFDA, for
its approval, on the Member’s completion of the implementation of the Action
Plan and resolution of the Deficiencies (the “Completion Report”).
viii. The MFDA reserves the right to add, delete or change any aspect of the
proposed testing procedures, time frame or Completion Report format,
provided that the Member will be given a reasonable opportunity to comment
on any such addition, deletion or change;
ix. Once the testing procedures, time frame and Completion Report format have
been approved by the MFDA, the Monitor shall complete the testing
procedures and provide the Completion Report to the MFDA in the format
and within the time frame approved by the MFDA in accordance with
subparagraph 1(c)(viii);
x. Where the Completion Report identifies any continuing Deficiencies, or
where prior to the determination by the MFDA that the Deficiencies have
been resolved (but after the Completion Report has been provided to the
MFDA) the MFDA becomes aware from other sources that there are
continuing Deficiencies, the MFDA may in its sole discretion do either or
both of the following:
1. Make recommendations to resolve the continuing Deficiencies identified
in the Completion Report and direct the Member to implement all such
recommendations and have the Monitor conduct any additional testing
within a reasonable time period to be determined by the MFDA;
2. Pursue additional enforcement action pursuant to Section 24 of MFDA
By-law No. 1 with regard to the Member’s failure to resolve the
Deficiencies.
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xi. The Member shall provide a copy of this Settlement Agreement and Terms of
the Independent Monitor to all members of its Board of Directors and provide
written confirmation of the same to the MFDA within four (4) weeks of the
date of signing of this Settlement Agreement.
xii. The Member shall provide its Board of Directors with copies of the Action
Plan and the Completion Report; and
xiii. The MFDA shall in its sole discretion determine whether it is satisfied that the
Deficiencies have been resolved and the Member shall not consider the
MFDA satisfied until it has received express written confirmation from the
MFDA that the MFDA is satisfied that the Deficiencies have been resolved.
2. Varying of the terms of the Terms of the Independent Monitor:
a. To the extent that there are fixed timelines in these Terms of the Independent
Monitor or the Action Plan, the MFDA may abridge or extend any time frame as
may reasonably be required and with the provision of reasonable notice to the
Member;
b. Other exceptions to the Terms of the Independent Monitor are permissible only
with the prior express written consent of Staff.
I confirm that by my signature, I am authorized to bind the Member to these Terms of the
Independent Monitor as part of the implementation of the Settlement Agreement and the
Order.
“Andrew Mitchell”
“Linda Kenny”
Name: Andrew Mitchell
Date
Witness
Title: President
Worldsource Financial Management Inc.
Name: Linda Kenny
Mutual Fund Dealers Association of Canada
“Shaun Devlin”
Shaun Devlin
July 12, 2010
Vice-President, Enforcement
Date
Page 18 of 21
Appendix “1”
Duties & Standards
File No. 200929
IN THE MATTER OF A SETTLEMENT HEARING
PURSUANT TO SECTION 24.4 OF BY-LAW NO. 1
OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA
Re: Worldsource Financial Management Inc.
DUTIES AND STANDARDS OF
THE INDEPENDENT MONITOR
A. Defined
Terms
1. Terms defined in the Terms of the Independent Monitor shall have the same meaning
in these Duties and Standards of the Independent Monitor.
B.
Duties of the Independent Monitor
1. The Monitor shall perform its duties with unimpaired professional judgment and
objectivity, and shall be seen to be doing so by a reasonable observer.
2. The Monitor shall be retained and remunerated by the Member.
3. The Monitor shall perform its services in accordance with these Duties and Standards
of the Independent Monitor.
4. The Monitor:
i. Shall notify the MFDA of any disagreement, dispute or other limitation
encountered with the Member that may result in the Terms of the Independent
Monitor not being satisfied. This includes but is not limited to situations
where there is a difference of opinion between the Monitor and the Member
with regard to:
1. The detailed nature of the Deficiencies;
2. The actions necessary to remedy the Deficiencies;
3. The procedures to be used to test the Member’s implementation of the
Action Plan.
ii. May advise the Member of the results during the testing process;
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iii. Shall prepare the Completion Report in an independent manner without
consultation with the Member as to the content of the report; and
iv. Shall provide the Completion Report directly to Staff, with a copy to the
Member.
C.
Qualifications of the Independent Monitor
1. The Monitor must exhibit and apply:
i.
An understanding of MFDA requirements (i.e. By-laws, Rules, Policies,
Notices and Bulletins);
ii.
Familiarity with mutual fund dealer operations and compliance issues; and
iii. Familiarity with adequate Member compliance procedures (i.e. the Monitor
should not be proposing procedures it develops at first instance without an
understanding of procedures compliant Members have instituted to meet
MFDA requirements).
D. Action
Plan
1. The Action Plan must outline the actions that will remedy the Deficiencies and
specific time frames for the completion of those actions.
E.
Implementation of the Action Plan
1. The Monitor shall supervise the implementation of the Action Plan and provide
necessary recommendations so that the plan is implemented to the satisfaction of the
Monitor. The Monitor’s supervision shall include review of the implementation of
any components of the Action Plan. This shall include but not be limited to:
i.
Changes to compliance department staffing;
ii.
Newly developed processes or written procedures;
iii. Training provided to supervisory staff and Approved Persons;
iv.
Newly developed client account forms or disclosure documents;
v.
Changes to branch and sub-branch review procedures;
vi.
Results of any branch or sub-branch reviews;
vii. Reports used for branch or head office supervision; and
viii. Changes to back-office systems.
F. Testing
Procedures
1. The testing procedures determined by the Monitor shall:
i.
Be sufficient to determine whether the Deficiencies have been resolved or
remain unresolved;
ii.
Specify the objective of the testing procedures, including citing which of the
Deficiencies the testing will address; and
iii. Specify the sampling methodology, including the size of samples to be tested.
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2. The Monitor shall prepare and maintain a file of its working papers regarding the
testing, which shall be made available to Staff upon request. The file must contain
sufficient information to enable an experienced individual, having no previous
connection to the engagement, to re-perform the testing procedures and come to the
same conclusions. The file must include appropriate documentation of the procedures
performed and the evidence obtained, including copies of documents reviewed or
sufficiently detailed information to identify the specific documents reviewed.
G. Completion
Report
1. When reporting on the results of testing, the Monitor must:
i.
Specify the procedures performed and the details of the samples selected;
ii.
State the factual results of performing the procedures and not express an
opinion on the results;
iii. Link the factual findings to the Deficiency being tested;
iv.
List any new deficiencies in compliance with MFDA requirements that are
noted during the testing on the original Deficiencies;
v.
Indicate any restrictions or limitations on the Monitor’s ability to perform the
procedures; and
vi.
Provide recommendations to remedy any new deficiencies or any continuing
Deficiencies.
H.
Compliance Department Assessment
1. When assessing and making its recommendations with regard to the Member’s
Compliance Department, the Monitor shall:
i.
Determine whether the Member has adequate resources to satisfy its
compliance obligations;
ii.
Specify the measurements and criteria used in the assessment;
iii. Specifically reference staffing and training with relation to the major
compliance processes within the member, including Supervision of Trading
and Leverage, Complaint Handling, Registration, General Corporate and
Branch Supervision, and Branch Reviews.
ACKNOWLEDGEMENT
PricewaterhouseCoopers LLP, the Independent Monitor retained by the Member and
approved by Staff to provide services to the Member in accordance with the Terms of the
Independent Monitor, hereby acknowledges that the terms of its retainer with the member
requires it to provide those services in accordance with the Terms of the Independent
Monitor and these Duties and Standards of the Independent Monitor.
Date:
July 14, 2010
Name:
Dorothy Sanford
Title:
Partner
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