Oversight Review Report of the Mutual Fund Dealers Association of Canada (MFDA)

Market Regulation Document Type
MFDA oversight review

Oversight Review Report of
the Mutual Fund Dealers Association of Canada

 

Issued: April 15, 2013


 


 

I. Introduction

The Mutual Fund Dealers Association of Canada (MFDA) is recognized as a self-regulatory organization for mutual fund dealers by the Alberta Securities Commission, the British Columbia Securities Commission (BCSC), the Financial and Consumer Affairs Authority of Saskatchewan, the Manitoba Securities Commission, the New Brunswick Securities Commission, the Nova Scotia Securities Commission, and the Ontario Securities Commission, collectively, the Recognizing Regulators. The MFDA’s head office is in Toronto and regional offices are in Calgary and Vancouver. 

The MFDA is not recognized as a self-regulatory organization in Québec. However, the MFDA cooperates with the Autorité des marchés financiers (AMF) concerning the regulation of MFDA member firms with operations and activities in Québec and elsewhere.

This report details the objectives, methodology, report format, scope, and findings of the oversight review completed by the Recognizing Regulators for the review period from January 1, 2009 to June 30, 2012.

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1. Objectives

The objectives of the oversight review were to:

  • assess whether the MFDA was in compliance with the terms and conditions (T&C) of its recognition orders (ROs)
  • determine whether the MFDA’s regulatory processes were efficient, effective, consistent, and fair
  • evaluate whether the MFDA had adequate staffing, resources, and training to effectively and efficiently perform its regulatory functions

 

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2. Methodology

The Recognizing Regulators adopted a new, risk-based methodology for this review. The Recognizing Regulators: 

  • assessed the inherent risks of each functional area of the MFDA based on discussions with senior MFDA personnel; reviews of internal MFDA documentation including annual management self-assessments; and information received from the MFDA in the ordinary course of oversight activities
  • evaluated known control functions for each area
  • considered relevant situational/external factors such as market conditions and changes in legislation
  • calculated an overall risk score for each area
  • used the risk score to determine the scope and depth of the review

 

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3. Report format

Previously, Recognizing Regulator staff (Staff) produced reports that detailed both effective and ineffective processes of the MFDA. In keeping with a risk-based approach, this report focuses on those areas with findings and includes general commentary on the areas within the scope of the review.  

 

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4. Scope

Staff determined through a risk assessment that the following are low risk areas that did not require review: 

  • Financial viability and fees - Staff monitored the MFDA’s financial position through reviews of its financial statements and budgets on an ongoing basis.
  • Business continuity plan (BCP) - Staff evaluated the BCP as part of the previous oversight review and noted no issues. The MFDA updates its BCP annually and there were no significant changes to the organizational structure since the last oversight review.
  • Cooperative Agreement in Québec - The AMF and the MFDA confirmed that the MFDA complied with the terms of the cooperative agreement concerning the regulation of MFDA member firms with operations and activities in Québec and elsewhere.

The oversight review covered the following areas:

  • Corporate Governance
  • Sales Compliance
  • Financial Compliance
  • Enforcement
  • Policy
  • Membership

Staff identified and assessed the key processes for each of the areas covered in the review. The scope of the review included only those processes or components that Staff assessed to be higher risk in each of the areas.

 

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5. Overall assessment

Based on the risk assessment, the scope of the work performed, and the results of the review, Staff are satisfied that the MFDA met the terms and conditions of the ROs in the areas covered during the review period. Nevertheless, Staff identified areas for improvement that require the MFDA to take corrective action. These are set out in the Fieldwork, findings, and recommendations section. In addition, Staff set out observations and suggestions for improvement for the MFDA to consider in Appendix A.

 

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6. Finding prioritization and functional assessment scale

Staff prioritized all findings into high, medium, and low, based on the following criteria:  

Staff assessed the functional areas using the following scale:  

 

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II. Fieldwork, findings, and recommendations

A. Corporate Governance 

 

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B. Sales Compliance

 

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C. Financial Compliance


 

 

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D. Enforcement

 

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E. Policy

 

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F. Membership

 

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G. Miscellaneous

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III. Appendix A – Low-priority findings and recommendations

 

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