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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: Excel Private Wealth Inc.

Settlement Agreement

I. INTRODUCTION

  1. By Notice of Settlement Hearing, the Mutual Fund Dealers Association of Canada (the “MFDA”) will announce that it proposes to hold a hearing to consider whether, pursuant to section 24.4 of MFDA By-law No. 1, a hearing panel of the Central Regional Council (the “Hearing Panel”) of the MFDA should accept the settlement agreement (the “Settlement Agreement”) entered into between Staff of the MFDA (“Staff”) and the Respondent, Excel Private Wealth Inc.

II. JOINT SETTLEMENT RECOMMENDATION

  1. 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 section 24.1 of MFDA By-law No. 1.
  1. 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”.
  1. 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

  1. 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 Part XI) 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

  1. Certika Investments Ltd. (“Certika”) became a Member of the MFDA on July 5, 2002.
  1. Investissements Excel inc. (“Investissements”) became a Member of the MFDA on June 6, 2013.
  1. On February 1, 2016, Certika amalgamated with Investissements (the “Amalgamation”) and changed its name to Excel Private Wealth Inc. (“Excel” or the “Respondent”).
  1. The Respondent is registered as a mutual fund dealer in the provinces of Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Prince Edward Island, Québec and Saskatchewan.
  1. The Respondent has been a Member of the MFDA since February 1, 2016.

Corporate Structure

  1. The Respondent’s head office is located at 2851 rue King Ouest, Sherbrooke, Québec. Currently, the Respondent maintains 205 branches and 38 sub-branches.

Supervision of BG’s Referrals of Syndicated Mortgages

  1. On November 12, 2013, the MFDA issued Bulletin #0853-P, Transactions by Approved Persons in Syndicated Mortgage Securities. The Bulletin provided guidance with respect to syndicated mortgages.  The Bulletin specifically advised that all syndicated mortgages sold or referred by Approved Persons must be facilitated through the accounts and facilities of the Member in accordance with the requirement of Rule 1.1.1 and are subject to all applicable MFDA Rules.
  1. On December 16, 2013, Approved Person, BG entered into a “Simple Referral Agent Agreement” with FMP Mortgage Investments Inc. to refer investors to purchase syndicated mortgages in Fortress Real Capital (the “Referral Arrangement”). BG did this without the knowledge or approval of the Respondent.
  1. On August 20, 2014, BG disclosed to the Respondent the Referral Arrangement and that he had referred three investors, two of whom were clients.
  1. On September 16, 2014, after conducting research on the internet and finding nothing unusual, the Respondent approved the Referral Arrangement.
  1. The Respondent did not obtain a written copy of the Referral Arrangement or review its terms.
  1. The Respondent was not a party to the Referral Arrangement.
  1. The Respondent approved the Referral Arrangement that they knew or ought to have known was impermissible because it allowed for the sale of securities outside its facilities and otherwise did not comply with the regulatory requirements pertaining to referral arrangements.
  1. None of the referral fees were paid to the Respondent and the Respondent failed to record all the referral fees collected on its books and records.
  1. The Respondent did not ensure that adequate disclosure was provided to clients with respect to the Referral Arrangement and the features of the product and the risks associated with the investment.
  1. The Respondent did not take any steps or conduct an investigation to determine whether other clients (beyond the two clients identified by BG) had purchased syndicated mortgage investments through the Referral Arrangement until requested to do so in December 2016.
  1. On December 20, 2016, the Respondent issued letters to the clients that were serviced by BG, which asked the clients if BG had recommended a product called Fortress Real Capital and to provide details of what they were told and how much they had purchased of the product. None of the clients contacted the Respondent.
  1. Commencing in 2017, the Respondent required each Approved Person to complete an annual questionnaire that asked each Approved Person about outside business activities, referral arrangements, exempt products, websites and other media related sites.
  1. Commencing in 2017, the Respondent required Approved Persons to complete an outside business activities declaration in which they disclosed activities conducted outside the Member including life and health insurance activities, income tax preparation, fee-based financial planning services, government or public duties and other activities. The form required Approved Persons to ensure that they provide clients with a dual occupation disclosure document.
  1. The Respondent did not receive any complaints relating to BG’s conduct.
  1. Staff has been advised that to the extent they incurred any losses, the three investors referred by BG reached a resolution with FMP Mortgage Investments Inc.

Tier Two Supervision Structure – Fail to Maintain a Tier Two Supervision Structure

  1. Commencing on April 4, 2016, MFDA Compliance Staff (“Compliance Staff”) conducted a compliance examination of the Respondent in order to assess the Respondent’s compliance with MFDA By-laws, Rules and Policies during the period of November 1, 2013 to February 29, 2016 (the “2016 Examination”).
  1. The 2016 Examination identified a number of compliance deficiencies.
  1. On or about April 20, 2016, as a result of the Amalgamation, the Respondent switched from operating two back office systems to operating one back office system.
  1. At that time, the Respondent stopped conducting tier two supervision of its Approved Persons.
  1. On August 2, 2016 during the final exit meeting for the 2016 Examination, the Respondent informed Compliance Staff that a two-tier supervision structure was in place.
  1. On January 13, 2017, the Respondent informed Compliance Staff that, from mid-April 2016 to mid-December 2016, the Respondent had not conducted tier two supervision of its Approved Persons.
  1. The Respondent informed Compliance Staff that it had expected that Certika and Investissements would transfer their activities to a single operating back office system on June 1, 2016, but the Respondent experienced technical difficulties and the transfer of the operations on a single operating system could not be completed until December 2016.
  1. The Respondent informed Compliance Staff that in mid-December 2016, the Respondent once again began conducting the tier two supervision, and reviewed the trades processed from April 20, 2016 to mid-December 2016 by its Approved Persons.
  1. Compliance Staff subsequently conducted tests to verify that the Respondent had properly implemented a tier two supervision structure from January 2017 onwards.

Trend Reports – Fail to Conduct Quarterly Trend Analysis Reviews

  1. From October 23, 2017 to December 12, 2017, Compliance Staff conducted a compliance examination of the Respondent in order to assess the Respondent’s compliance with MFDA By-laws, Rules and Policies during the period of March 1, 2016 to August 31, 2017 (the “2017 Examination”).
  1. The results of the 2017 Examination were summarized and delivered to the Respondent in a report dated March 27, 2018 (the “2018 Report”).
  1. The 2017 Examination identified, among other things, a compliance deficiency relating to the failure to conduct quarterly trend analysis reviews, compliant with the requirements set out in MFDA Policy No. 2.
  1. During the 2017 Examination, Compliance Staff were informed by the Respondent’s Chief Compliance Officer (“CCO”) that the Respondent had not conducted a supervisory review of the following quarterly trend analysis reports since June 2016:
    1. a quarterly review of reports on assets under administration (“AUA”) comparing current AUA to AUA at the same time the prior year; and
    2. a quarterly review of commission reports for the previous 12 month period comparing commissions received in the current year to commissions received for the same period in the prior year.
  1. The Respondent’s CCO informed Compliance Staff that the Respondent stopped conducting the reviews due to inadequate staffing levels.
  1. On March 7, 2018, the Respondent informed Compliance Staff that the Respondent had commenced supervisory reviews of the 2017 trend analysis quarterly reports and that the supervisory reviews should be completed by the end of March 2018.

Additional Factors

  1. The Respondent has no prior disciplinary history with the MFDA.
  1. The Respondent has cooperated at all times and by entering into this Settlement Agreement, the Respondent has saved the MFDA the time, resources and expenses associated with conducting a full hearing of the allegations.

V. CONTRAVENTIONS

  1. The Respondent admits that between August 20, 2014 and September 16, 2014, the Respondent failed to conduct adequate due diligence on Approved Person, BG’s referral arrangement, contrary to MFDA Rule 2.5.1 and MFDA Policy No. 2.
  1. The Respondent admits that from April 2016 to December 2016, the Respondent failed to maintain a tier two supervision structure for its Approved Persons, contrary to MFDA Rule 2.5.1 and MFDA Policy No. 2.
  1. The Respondent admits that from June 2016 to March 7, 2018, the Respondent failed to conduct supervisory reviews of quarterly trend analysis reports, contrary to the Respondent’s policies and procedures, MFDA Rule 2.5.1 and MFDA Policy No. 2.

VI. TERMS OF SETTLEMENT

  1. The Respondent agrees to the following terms of settlement:
    1. the Respondent shall pay a fine in the amount of $40,000.00 upon acceptance of the Settlement Agreement;
    2. the Respondent shall pay costs in the amount of $7,500.00 upon acceptance of the Settlement Agreement;
    3. a senior officer of the Respondent will attend in person, on the date set for the Settlement Hearing; and
    4. the Respondent shall in the future comply with all MFDA By-laws, Rules and Policies, and all applicable securities legislation and regulations made thereunder, including MFDA Rule 2.5.1 and MFDA Policy No. 2.

VII. STAFF COMMITMENT

  1. 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 or any of its officers or directors in respect of the contraventions described in Part V of this Settlement Agreement, subject to the provisions of Part IX below. Nothing in this Settlement Agreement precludes Staff from investigating or initiating proceedings in respect of any contraventions that are not set out in Part V of this Settlement Agreement or in respect of conduct that occurred outside the specified date ranges of the contraventions set out in Part 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

  1. 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.   MFDA Settlement Hearings are typically held in the absence of the public pursuant to section 20.5 of MFDA By-law No. 1 and Rule 15.2(2) of the MFDA Rules of Procedure. If the Hearing Panel accepts the Settlement Agreement, then the proceeding will become open to the public and a copy of the decision of the Hearing Panel and the Settlement Agreement will be made available at mfda.ca.
  1. 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.
  1. 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 section 24.1.2 of MFDA By-law No. 1 for the purpose of giving notice to the public thereof in accordance with section 24.5 of MFDA By-law No. 1.
  1. 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.

IX. FAILURE TO HONOUR SETTLEMENT AGREEMENT

  1. 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, Staff reserves the right to bring proceedings under section 24.3 of 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.

X. NON-ACCEPTANCE OF SETTLEMENT AGREEMENT

  1. 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, each of Staff and the Respondent will be entitled to any available proceedings, remedies and challenges, including proceeding to a disciplinary hearing pursuant to sections 20 and 24 of MFDA By-law No. 1, unaffected by this Settlement Agreement or the settlement negotiations.
  1. 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.

XI. DISCLOSURE OF AGREEMENT

  1. 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.
  1. Any obligations of confidentiality shall terminate upon acceptance of this Settlement Agreement by the Hearing Panel.

XII. EXECUTION OF SETTLEMENT AGREEMENT

  1. This Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement.
  1. A facsimile copy of any signature shall be effective as an original signature.
  • NM
    Witness - Signature
  • NM
    Witness - Print Name
  • “Patrick Ouellet”

    Excel Private Wealth Inc.
    Per: Patrick Ouellet, Chief Compliance Officer

  •  

    “Shaun Devlin ”

    Staff of the MFDA
    Per: Shaun Devlin
    Senior Vice-President,
    Member Regulation – Enforcement

634640


Schedule “A”

Order
File No.

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: Excel Private Wealth Inc.

ORDER

WHEREAS on [date], the Mutual Fund Dealers Association of Canada (the “MFDA”) issued a Notice of Settlement Hearing pursuant to section 24.4 of MFDA By-law No. 1 in respect of Excel Private Wealth 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 sections 20 and 24.1 of MFDA By-law No. 1;

AND WHEREAS the Hearing Panel is of the opinion that the Respondent:

  1. between August 20, 2014 and September 16, 2014, failed to conduct adequate due diligence on Approved Person, BG’s referral arrangement, contrary to MFDA Rule 2.5.1 and MFDA Policy No. 2;
  2. from April 2016 to December 2016, failed to maintain a tier two supervision structure for its Approved Persons, contrary to MFDA Rule 2.5.1 and MFDA Policy No. 2;
  3. from June 2016 to March 7, 2018, failed to conduct supervisory reviews of quarterly trend analysis reports, contrary to the Respondent’s policies and procedures, MFDA Rule 2.5.1 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 $40,000.00;
  1. The Respondent shall pay costs in the amount of $7,500.00;
  1. The Respondent shall in the future comply with all MFDA By-laws, Rules and Policies, and all applicable securities legislation and regulations made thereunder, including MFDA Rule 2.5.1 and MFDA Policy No. 2.
  1. If at any time a non-party to this proceeding, with the exception of the bodies set out in section 23 of MFDA By-law No. 1, requests production of or access to exhibits in this proceeding that contain personal information as defined by the MFDA Privacy Policy, then the MFDA Corporate Secretary shall not provide copies of or access to the requested exhibits to the non-party without first redacting from them any and all personal information, pursuant to Rules 1.8(2) and (5) of the MFDA Rules of Procedure.

DATED this [day] day of [month], 20[  ].

Per:      __________________________
[Name of Public Representative], Chair

Per:      _________________________
[Name of Industry Representative]

Per:      _________________________
[Name of Industry Representative]