Self-regulator urges member firms to align with prohibition before May 2022 effectivity date
The ban on the DSC option for mutual funds won’t take effect until June 1, 2022, which some stakeholders say hurts the interests of retail investors. But the Mutual Fund Dealers Association of Canada (MFDA) has vowed to take steps against that.
In a newly published bulletin, the MFDA summarized responses to a 60-day consultation it had launched in June regarding proposed amendments to MSN-0069 – Suitability.
Among the comments, the self-regulatory organization noted that an investor advocate urged it to address, within MSN-0069, the suitability of DSC sales made after December 31, when requirements relating to the Client Focused Reforms from the Canadian Securities Administrators (CSA) will take effect.
In response, the MFDA said that under its existing KYC and suitability requirements, member firms and approved persons must make sure each order accepted or recommendation made for any client account is based on the essential facts relative to the client and any investments within the account.
“The MFDA will be reviewing Member DSC activity prior to the ban to assess compliance with existing MFDA Rules,” the self-regulator said.
The MFDA also referenced the fact that it has previously published guidance for member firms to assess the suitability of DSC trading.
In the newest revision of MSN-0069, which incorporates changes to align with the client focused reforms, the MFDA clarifies that policies and procedures must be in place at member firms to identify potentially concerning patterns of activity, including among others:
• Excessive trading or switching between funds indicating possible unauthorized trading, unsuitable trades, or possible issues of churning;
• Excessive switches between no-load funds and DSC or front-load funds; and
• Excessive switches between DSC funds and front load-funds;
“During the intervening period (i.e. from December 31, 2021 – May 31, 2022), to the extent possible, Members and Approved Persons should act in a manner that is consistent with the upcoming ban,” the MFDA said. “In particular, Members should use the period before the effective date of the ban to structure their business operations so that they are aligned with its provisions.”