1. Association of Canadian Compliance Professionals
Toronto, ON
April 25, 2016

2. Compliance Update

3. Agenda Sales Compliance Activity Round 4 – Sales Examination Findings
Round 5 – Sales Examination Process Changes
Focus on Fees
Additional Reforms to Improve Suitability Standards
Member Education and Proficiency

4. Sales Compliance Activity

5. Round 4 Compliance Activity
January 2012 to December 2015
125 Head office locations
311 Branch office locations
24 Targeted exams

6. Round 4 - Sales Examination Findings

7. Sales Examination Findings
Communications
Form part of the Member’s books and records
Issues include:
use of non-Member accounts;
acceptance of trade instructions;
delivery of confidential documents;
access by Member;
maintaining evidence of delivery of regulatory required documents

8. Sales Examination Findings
Branch Review Program
Risk ranking methodology
Not all locations being reviewed within 3 years
Inadequate test procedures and documentation
Report not identifying all issues and not issued on a timely basis
Resolution not timely or adequate and lack of follow-up
Not updating location risk

9. Sales Examination Findings
Suitability of Investments
Income vs. cash flow
DSC considerations
Time horizon
Age
Concentration
No policy
Include higher risk sector funds

10. Sales Examination Findings
Suitability of Leverage
Risk Management
Regular review of loan value vs market value
Issues with use of ROC/T-series/monthly pay funds
If fund return is less than distribution rate, MV of investment will decrease while loan remains the same if interest only or decreases at a slower rate if P&I
Inappropriate marketing and presentation of the strategy
Self funding, generate income, tax advice
Risks
Erosion of capital
Sustainability of fund distributions
Changes to interest rates
Clients ability to service debt
Tax deductibility of interest

11. Sales Examination Findings
Resolution of KYC Patterns
MFDA staff have noted KYC uniformity recommendations relating to:
Leverage
trading in high risk exempt securities or sector funds
Resolution
Supervisor to contact clients to assess KYC 10

12. Round 5 - Sales Examination Changes

13. Round 5 - Sales Examination Changes
Updated trade blotter request
Access to the Member’s system
Risk model
CRM2/POS3

14. Focus on Fees

15. Focus On Fees DSC Fee-based programs Premium/Investor Series Funds
Sales Incentives and Conflicts of Interest
Expanding Charges and Compensation Reporting 14

16. Additional Reforms to Improve Suitability Standards

17. Additional Reforms to Improve Suitability Standards
Enhance supervision
DSC trades
Concentration limits
Enhance KYC standards
Comprehensive standards to assess KYC
Frequency of updates

18. Member Education and Proficiency

19. Member Education and Proficiency
Continuing Education
ETF’s
Financial Planning Titles
Best Practices in the Advisory Process 18

20. Enforcement Update

21. Statistics Cases opened Formal Proceedings commenced
Regular Track
Bulk Track
Signature Falsification
Member and Supervisors
Detection, Investigation, RSI and Internal Discipline

22. Insurance Regulators FSCO Other Provinces Cases Member Initiatives
Theft, Fraud
Borrowing from clients and other conflicts
Churning
Fine payment
Member Initiatives

23. OBSI Independent Review Industry Comments Process for impasse cases
Fairness harmonized with regulatory standards
In consultation with Members and other stakeholders
Transparent principles and case examples
Followed consistently by OBSI staff
Applied impartially
Process for impasse cases
OBSI regional meetings with Members

24. Investor Education Existing Future Opening Your Investment Account
The Benefits of Working with an MFDA Member
POS3 Investor Notice
Future
A Guide to Selecting a Mutual Fund Advisor
CRM2 – What It Means For Clients

25. Issues From Current Cases
Suitability
Account transfer and material change
Trade reviews and complaint handling
Accuracy of recorded KYC information
Explanation of features, risks and benefits
DSC trades
time horizon and seniors
Disclosure at time of purchase and redemptions

26. Suitability Concentration
Sector Funds, e.g. Precious Metals
Exempt Products
Members involving high risk AP’s in resolution of:
Leveraging suitability
“Waivers”
Clients needing preservation of capital
Risk vs. Return explanation
Special Purpose e.g. Buying House

27. Other Issues Complaint handling Outside financial planning
Complaint handling staff
Requirements of Policy 3
Outside financial planning
“Double dipping” in agreements
Information Security and Fraud
AP’s acting on instructions from persons posing as clients

28. Recent Cases Equity Associates Global Maxfin HollisWealth Sunlife
Beckford
Eagan
Rumball

29. Questions