IN THE MATTER OF A DISCIPLINARY HEARING PURSUANT TO SECTIONS 20 AND 24 OF BY-LAW NO. 1 OF THE MUTUAL FUND DEALERS ASSOCIATION OF CANADA
Re: Wealthsimple Advisor Services Inc.
- The Mutual Fund Dealers Association of Canada (the “MFDA”) will announce that it proposes to hold a hearing (the “Settlement 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, Wealthsimple Advisor Services Inc. (the “Respondent”).
- Staff and the Respondent consent and agree to the terms of this Settlement Agreement.
- Staff and the Respondent jointly recommend that the Hearing Panel accept the Settlement Agreement.
- The Respondent admits to the following violations of the By-laws, Rules or Policies of the MFDA:
- between February 2019 and August 2019, the Respondent implemented a process for onboarding Approved Persons of other MFDA Members and Investment Dealers which failed to ensure that potential clients had consented to the disclosure of their confidential information to a company affiliated with the Respondent, thereby failing to implement an adequate system of controls and supervision over its onboarding process, contrary to MFDA Rules 2.1.3, 2.5.1 and 2.1.1.
- between April 1, 2019 and May 27, 2019, the Respondent failed to implement an adequate system of controls and supervision over its process for onboarding Approved Persons of other MFDA Members and Investment Dealers by failing to prevent staff of an affiliated company from viewing and accessing the system of another MFDA Member in order to assist an incoming Approved Person to transfer confidential client information without the other MFDA Member’s knowledge or consent, contrary to MFDA Rules 2.1.3, 2.5.1 and 2.1.1.
III. TERMS OF SETTLEMENT
- Staff and the Respondent agree and consent to the following terms of settlement:
- the Respondent shall pay a fine in the amount of $100,000, pursuant to s. 24.1.2(b) of MFDA By-law No. 1, which shall be payable in certified funds on the date that this Settlement Agreement is accepted by a Hearing Panel;
- the Respondent shall pay costs in the amount of $20,000, pursuant to s. 24.2 of MFDA By-law No. 1, which shall be payable in certified funds on the date that this Settlement Agreement is accepted by a Hearing Panel; and
- a senior officer of the Respondent who is authorized to appear on behalf of the Respondent will attend on the date set for the Settlement Hearing.
- Staff and the Respondent agree to the settlement on the basis of the facts set out in this Settlement Agreement herein and consent to the making of an Order in the form attached as Schedule “A”.
IV. AGREED FACTS
- Commencing on October 4, 2018, the Respondent has been a Member of the MFDA, and registered in all provinces and territories in Canada as a mutual fund dealer. On December 22, 2020, the Respondent voluntarily suspended its registration in all provinces and territories.
- On May 15, 2020, the Respondent provided the MFDA with written notice of its intention to resign from the MFDA, and thereafter over the course of seven (7) months it wound up its operations, notified its Approved Persons and clients that it had ceased operations, facilitated the transfer of its clients’ investments to other entities, and closed all of its client accounts.
- The Respondent’s membership status in the MFDA is currently listed as “inactive-pending resignation”. The Respondent’s resignation will be completed upon the conclusion of this proceeding.
- At all material times, the Respondent’s head office was located in Toronto, Ontario.
Wealthsimple Technologies Inc.
- At all material times, Wealthsimple Technologies Inc. (“WSTI”) was a company affiliated with the Respondent that provided technology services, including cloud-based data storage and data management, to the Respondent and other companies affiliated with the Respondent.
- At all material times, the Respondent and WSTI were wholly owned by the same holding company. The Respondent and WSTI were related companies and conducted business from the same office location. The Respondent acknowledges that it was responsible for the conduct of WSTI as it relates to the matters described herein.
The Onboarding Process
- In 2019, the Respondent was soliciting Approved Persons (the “Approved Persons”) registered with other MFDA Members and Investment Dealers (collectively, the “Other Dealers”) to transfer their registrations and books of business to the Respondent.
- For Approved Persons who intended to transfer their registration and book of business to the Respondent, the Respondent designed and implemented a process (the “Onboarding Process”) whereby the Approved Persons provided WSTI with information regarding the clients whose accounts they serviced at the Other Dealers, prior to the Approved Persons becoming registered with the Respondent, and the information was inputted into a cloud-based portal that WSTI maintained (the “WSTI Portal”). The Respondent states that the WSTI Portal was secure.
- The Respondent utilized WSTI as an intermediary to store the client information described above on the WSTI Portal in anticipation of the Approved Persons transferring their registration to the Respondent.
- As part of the Onboarding Process, confidential client information (the “Client Information”) was inputted into the WSTI Portal, which included the clients’:
- social insurance numbers;
- dates of birth;
- email addresses;
- phone numbers;
- account numbers;
- account types; and
- investment holdings and values of investments.
- The Respondent failed to ensure that the clients had consented to provide their Client Information to WSTI.
- The Respondent’s Onboarding Process consisted of the following:
- Approved Persons interested in transferring their registration and books of business to the Respondent entered into a Client Data Onboarding Services Agreement (“Agreement”) with WSTI.
- Pursuant to the Agreement, the Approved Person provided WSTI with the Client Information prior to the Approved Person becoming registered with the Respondent, and the Client Information was then inputted to the WSTI Portal.
- After the Approved Person provided WSTI with the Client Information, the Approved Person invited the clients to access the WSTI Portal where the clients could provide their consent to the Approved Person to release their personal information to the Respondent.
- If a client accessed the WSTI Portal and consented to the release of their personal information to the Respondent, WSTI sent the client’s Client Information to the Respondent. The Client Information was then used to help populate the forms required to open client accounts with the Respondent.
- The Respondent states that if, after 180 days, a client did not provide their consent to release their personal information to the Respondent, WSTI would permanently delete the client’s Client Information pursuant to the terms of the Agreement.
- Between February and August 2019, as part of the Onboarding Process, 20 Approved Persons, including 19 Approved Persons registered with other MFDA Members, provided WSTI with Client Information pertaining to a total of approximately 2,990 clients.
- Of the 20 Approved Persons described above, 4 Approved Persons provided Client Information to WSTI 14-65 days prior to signing an Agreement with WSTI and WSTI does not have a signed Agreement for one Approved Person.
- The Agreement stated that the Approved Person certified that he or she had the authority to provide the Client Information to WSTI. However, neither WSTI nor the Respondent independently verified that the Approved Person had obtained the consent and authorization of the clients to transfer the Client Information to WSTI.
- By designing and implementing an Onboarding Process whereby neither the Respondent nor WSTI independently ensured that potential clients had consented to provide WSTI with their Client Information as described above, the Respondent compromised the confidentiality of the clients’ Client Information.
- The Respondent thereby failed to implement and maintain an adequate system of controls and supervision over its Onboarding Process.
Inadequate Controls and Supervision to Prevent Unauthorized Access to Another Member’s System
- As described above, pursuant to the Respondent’s Onboarding Process, Approved Persons of Other Dealers who sought to transfer their registration and book of business to the Respondent provided Client Information to WSTI, prior to being registered with the Respondent.
- Unregistered employees of WSTI (“WSTI Staff”) provided technical support to assist the Approved Persons in providing WSTI with Client Information during the Onboarding Process.
- At all material times, LH was an Approved Person registered with another MFDA Member (the “Other Member”).
- In 2019, LH agreed to participate in the Respondent’s Onboarding Process, and he signed an Agreement to send Client Information to WSTI with the intention that he would subsequently transfer his registration from the Other Member to the Respondent.
- During the Onboarding Process, LH experienced technical difficulties when attempting to provide WSTI with Client Information.
- LH requested that ST, who was an Approved Person registered with a different MFDA Member and who was also seeking to transfer his registration to the Respondent, assist LH to provide WSTI with Client Information so that it could be inputted to the WSTI Portal.
- On or about April 1, 2019, LH provided ST with LH’s username and password to enable ST to access the Other Member’s customer relationship management system (the “System”) so that ST could provide WSTI with Client Information on behalf of LH.
- On April 1, 2019:
- ST used LH’s username and password to log into the System;
- while logged into the System, ST shared his screen remotely with WSTI Staff;
- during the screen-sharing session, WSTI Staff viewed the contents of the System and three reports (the “Reports”) were generated from the System which contained Client Information; and
- ST saved the Reports on his computer and then emailed them to WSTI Staff on behalf of LH.
- On or about May 27, 2019, LH provided a WSTI Staff member with LH’s username and password for the System so that the WSTI Staff member could access the System and obtain additional Client information.
- On May 27, 2019, the WSTI Staff member used LH’s username and password to log into the System and obtain the additional Client Information.
- The Other Member was not aware of any of the activities described above, and at no time did the Other Member provide consent to WSTI or any other parties affiliated with the Respondent to access or view the contents of the System, generate and receive reports from the System, or obtain Client Information from the System.
- The Respondent states that it was not aware of any of the activities described above in paragraphs 30-33.
- The Respondent admits that it failed to implement an adequate system of controls and supervision to prevent WSTI Staff from viewing, accessing or attempting to access the Other Member’s System in order to obtain Client Information.
- The Respondent thereby compromised the confidentiality of the Client Information that was contained in the System and, in the case of the events of April 1 and May 27, 2019 described above, prevented the Other Member from maintaining the Client Information in confidence in compliance with its obligations.
- The Respondent states that all Client Information provided to WSTI pursuant to the Onboarding Process has been deleted, other than:
- Client Information of clients who accessed the WSTI Portal and consented to release their personal information to the Respondent; and
- Client Information that is relevant to ongoing MFDA matters, which is being held in a secure location based on the request of MFDA Staff.
- There is no evidence of client financial loss arising from the matters described herein.
- The Respondent states that:
- training was provided to WSTI Staff by the Respondent on issues of client confidentiality, although WSTI Staff were not told that they should not access or attempt to access the back office systems of other Members;
- documents were prepared and provided by the Respondent to incoming Approved Persons that explained the Onboarding Process and the importance of client consent to transfer client information and the protection of client confidentiality;
- ongoing training sessions and meetings were held with WSTI Staff in charge of the Onboarding Process during which the Respondent’s compliance staff discussed compliance issues and questions and explained, among other things, the importance of protecting client confidentiality during the Onboarding Process; and
- the Respondent’s compliance staff would directly attend at the desks of WSTI Staff involved in the Onboarding Process on a daily basis to supervise their activities and provide guidance to them.
- The Respondent has not previously been the subject of MFDA disciplinary proceedings.
- By entering into the Settlement Agreement, the Respondent has saved the MFDA the time, resources, and expenses associated with conducting a contested hearing of the allegations.
V. ADDITIONAL TERMS OF SETTLEMENT
- This settlement is agreed upon in accordance with section 24.4 of MFDA By-law No. 1 and Rules 14 and 15 of the MFDA Rules of Procedure.
- The Settlement Agreement is subject to acceptance by the Hearing Panel. At or following the conclusion of the Settlement Hearing, the Hearing Panel may either accept or reject the Settlement Agreement. 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.
- The Settlement Agreement shall become effective and binding upon the Respondent and Staff as of the date of its acceptance by the Hearing Panel. Unless otherwise stated, any monetary penalties and costs imposed upon the Respondent are payable immediately, and any suspensions, revocations, prohibitions, conditions or other terms of the Settlement Agreement shall commence, upon the effective date of the Settlement Agreement.
- Staff and the Respondent agree that if this Settlement Agreement is accepted by the Hearing Panel:
- the Settlement Agreement will constitute the entirety of the evidence to be submitted at the settlement hearing, subject to rule 15.3 of the MFDA Rules of Procedure;
- the Respondent agrees to waive any rights to a full hearing, a review hearing or appeal 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;
- except for any proceedings commenced to address an alleged failure to comply with this Settlement Agreement, Staff will not initiate any proceeding under the By-laws of the MFDA against the Respondent in respect of the facts and contraventions described in this Settlement Agreement. 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 this Settlement Agreement, 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;
- the Respondent shall be deemed to have been penalized by the Hearing Panel pursuant to s. 24.1.2 of MFDA By-law No. 1 for the purpose of giving notice to the public thereof in accordance with s. 24.5 of MFDA By-law No. 1; and
- 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 the Respondent.
- If this Settlement Agreement is accepted by the Hearing Panel and, at any subsequent time, the Respondent fails to honour any of the Terms of Settlement set out herein, Staff reserves the right to bring proceedings under section 24.3 of the By-laws of the MFDA against the Respondent based on, but not limited to, the facts set out in this 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.
- If, for any reason, this Settlement Agreement is not accepted 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 the Settlement Agreement or the settlement negotiations.
- 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. The terms of the Settlement Agreement, including the attached Schedule “A”, will be released to the public if and when the Settlement Agreement is accepted by the Hearing Panel.
- The Settlement Agreement may be signed in one or more counterparts which together shall constitute a binding agreement. A facsimile or electronic copy of any signature shall be as effective as an original signature.
EWWitness - Signature
EWWitness - Print Name
Wealthsimple Advisor Services Inc.
Per: Blair Wiley
Chief Legal Officer
Staff of the MFDA
Per: Charles Toth