2016 ANNUAL GENERAL MEETING December 7, 2016

ACCP 2016 AGM Manny DaSilva, ACCP Chair

2016 ACCP AGM General Welcome Roll Call MFDA Enforcement and Compliance Presentation Shaun Devlin, LLB., Senior VP Member Regulation-Enforcement Brett Konyu, Manager Member Education

Association of Canadian Compliance Professionals MFDA Update Presented to the Association of Canadian Compliance Professionals December 7, 2016 DM#514710 4

Agenda Concentration Deferred Sales Charges and Seniors Establishing Know Your Client Information Electronic Communications 5 5 5

CONCENTRATION 6 6

Concentration Generally speaking, diversification reduces risk and concentration of holdings increases risk. MFDA focus on: Investments in sector specific funds (e.g. resource, emerging markets, precious metals), that are usually high risk. Investments in high risk, illiquid exempt market products or other illiquid high risk products. Red flags identified based on: % of holdings in the account; % of all the client’s holdings at the Member; and then % of all financial/liquid assets (i.e. assets held outside Member). 7 7 7

Concentration Bulletin 678-C Review of Specific Policies and Procedures Considerations for policies and procedures: How to calculate the concentration limit preapproval of purchases in higher risk exempt securities how to assess reasonability and reliability of the value of the outside financial assets, where such assets are used to determine concentration the use of KYC forms that collect sufficient details of the client’s net investible assets include review for concentration concerns as part of the daily trade supervision process. Training of APs and supervisory staff 8 8 8

DEFERRED SALES CHARGES AND SENIORS 9 9

Deferred Sales Charge Sweep MFDA conducted a DSC sweep in 2015 Reviewed trading activity for a 12 month period for select Members Looked at over 600 DSC trades There was a focus on senior clients Issued MFDA Bulletin #0670-C – 2015 DSC Sweep Report on December 18, 2015 10 10 10

Deferred Sales Charge Sweep General findings regarding age: Most policies did not have guidance regarding age Most policies did not comment on time horizon in relation to client’s age Supervision of redemptions focused on disclosure of the charge, and not the suitability of the charge Noted instances where fee disclosure was not provided for estate liquidations Noted a number of DSC purchases in client RRIF accounts and/or for elderly clients 11 11 11

DSC Sweep – Good Practices & Recommendations Policies and procedures regarding age: assess the reasonableness of the client’s time horizon considering the client’s age restrict or query purchases for seniors restrict or query purchases in RRIF accounts review DSC redemptions with charges 12 12

ESTABLISHING KNOW YOUR CLIENT INFORMATION 13 13

Best Practices for KYC Use KYC definitions Use standard forms Use questionnaires Have a Member policy for updating KYC information within a specified time-frame Perform KYC updates with same rigour as original KYC discovery process 14 14 14

Best Practices for KYC Simply asking the client “Has anything has changed?” may not be clear to the client that you are asking about all KYC information If you are not re-documenting the KYC information in full, complete a review of the specific current KYC information on file with the client on a regular basis and document the discussion or have the client sign a new form Identify potential KYC issues via branch examinations, complaint handling and supervisory queries Conduct regular training 15 15 15

Documentation Notes and Observations Notes and observations (in addition to complete instructions and authorization) are an integral part of the Advisor’s and Member’s evidence of compliance with requirements Notes are the details of the conversations, reasons for decisions made, facts, concerns and next steps Observations may include behaviour, emotions, level of understanding (e.g. when discussing risk and reward) 16 16 16

Documentation Notes and Observations Use of standard trade and KYC forms alone are not enough because: Forms do not always account for special circumstances and situations Forms are not typically used to record conversations that preceded the transactions or when no transactions took place Could use a standard Meeting Notes form that is designed to record notes and observations from meetings. 17 17 17

Elements of Good Notes and Observations Date, time, location and method of communication e.g. phone or in person Stored in a standard location e.g. in client file or contact management system Sufficient detail on the material points of the discussion discussions about various client life events Are precise For example, “KYC reviewed with client” is too general since it is unclear what was done to review KYC Just asked a question? “Has your KYC has changed”? vs a full review of each KYC component, with definitions and client confirmation that nothing had changed. 18 18 18

Elements of Good Notes and Observations Document notes as soon as possible Document any tools used and maintain handouts provided Include observations where appropriate Consider follow-up communications Where no decision was made, there is less audit trail. It may be appropriate to confirm your understanding of the discussion through a follow-up letter or email. Do NOT use follow-up communications to pass on liability (i.e. will not save you from an unsuitable recommendation) 19 19 19

ELECTRONIC COMMUNICATIONS 20 20

Electronic Communications Use of personal email Part of Member books and records Privacy Security Use of Member email Privacy concerns still remain Evidence of delivery Trade instructions If under an Limited Authorization, confirm with the client via phone Use of a secure portal 21 21 21

Questions? 22 22 22

2016 ACCP AGM Approve Agenda Approve Minutes Treasurers Report

2016 ACCP AGM ACCP Board for 2017 Best Practices / MFDA Presentation Discussion OSC Roundtable for Stakeholders – CSA Consultation Paper 33-404 MFDA Bulletins - NIL

2016 ACCP AGM ACCP Conference Update ACCP Compliance Professional Achievement Award Other Business Next Meeting – Friday, January 27, 2017