We recently completed our MFDA 2016 Sales Compliance Audit and were very pleased with the results which are a reflection of the quality of the business you conduct with your clients and of the strength of our support and supervision. Having said that, we do have a few reminders going forward that we bring to your attention and ask that you ensure are fully integrated into your practice.
1. Disclosure of Outside Business Activities (OBA) and Entity
Disclosure of approved OBAs is provided to clients as part of the KYC or KYC Update. Please be reminded of the requirement to provide the name of the entity/entities through which you are providing the OBA approved activity.
Examples include:
Activity Entity
Self-employed Life Insurance Agent Self-employed
Life Insurance Agent employed by Agency
Name of Agency
Mortgage Agent Name of Mortgage Brokerage
Other business Name of business entity
2. Signature Falsification, Pre‐Signed and/or Partially Completed Forms
(Refer to Compliance Bulletin #2015‐08 Signature Falsification ‐ MFDA Bulletin #0661‐E)
Please be reminded that clients must only sign a fully completed document. The entirety of the document must be provided for the client’s signature (i.e. the client cannot be provided with just the last page of a document to sign, the client must be given the entire document, even if their signature is only required on the last page). All corrections made to a documentafter it has been signed by the client must be initialed and dated by the client.
Examples of signature falsifications encountered during Compliance reviews include:
1. Client redeeming funds from one Fund Company and using the proceeds to make purchases into several different fund companies. Client signed one blank trade form, which was then photocopied. Investment instructions were added to the trade forms with the photocopy of the client’s signature in order to make the purchases.
2. Client was sent a KYC form to sign, however the Plan Objective and Time Horizon were not completed on the form and the AML/PEFP questions had not been answered. Client signed the KYC and emailed a copy back to the Representative. The missing information was then added after the client signed the KYC. These additions were not initialed by the client.
3. Client signed trade form with instructions to make multiple switches in their account. After the client signed the trade form the Representative discovered that the client no longer held one of the funds indicated on the form, therefore that switch could not be made. The switch was crossed out by the Representative and all other trades were processed. The change was not initialed by the client.
4. Client signed a fund company application/order form that did not include any indication of the load type of the fund(s) being purchased. The load types (both DSC and FE) were added after the client signed the form. These additions were not initialed by the client.
5. Client signed a transfer form that did not include investment instructions for the proceeds once received at the ‘Receiving Institution’. This section was left blank. Investment instructions were provided separately on the Fund Company Application. The transfer form would be viewed as a partially completed form when signed by the client. If you do not wish to provide investment instructions on the transfer form a note to “refer to the Fund Company Application” or “HCI Order Ticket” must be included on the transfer form under investment instructions when signed by the client.
If HCI identifies a case of signature falsification or pre‐signed forms, we are required to conduct a review of additional client files to determine if other cases can be identified. We are also required to report all such cases to the MFDA on the METS system, regardless of whether there is only one instance found, or multiple trades and clients are involved. Please take the time to review these communications as it is imperative for you to review all documentation for its completeness before it is provided to the client for signature. In addition to any regulatory action, HCI will impose sanctions including a minimum $2,500 fine, close supervision and/or termination where it identifies a pre‐signed blank form held for a client.
3. Providing Relationship Disclosure Statement (New Client and KYC Updates) and Copies of all Documents
Please be reminded of the requirement under HUB Capital policies and procedures and regulatory requirements to provide clients with copies of KYCs, KYC Updates, trade documents, disclosures, limited trading authorizations (LTAs), etc. in their entirety (i.e. all 7 pages of KYC and KYC updates to include disclosures, front and back of trade documents that have important disclosures on the reverse side of the document).
4. DSC – Time Horizons less than DSC Schedule, Client’s Age 65 and older
DSC purchases for clients are not generally appropriate where the client’s time horizon is shorter than the DSC schedule or for clients over age 65, however, with the appropriate disclosure, HCI will typically permit DSC purchases of an amount required to generate funds to cover a commission rebate on transfer of funds from other institutions. Where possible, HCI would expect Approved Persons to use the LL version of the fund when rebating clients where the time horizon is shorter than the DSC schedule or they are age 65 and older. In these cases, the amount being purchased into the LL fund should only be enough to cover the actual cost of the commission rebate, with the remaining proceeds invested into the FE version of the fund.
5. Advertising, Newsletter, Website, Linked-in, Social Media and Subsequent Changes Pre-approval
Under HUB Capital policies and procedures and regulatory requirements all advertising and sales communications must be pre‐approved before being made available to the public. Advertising and sales communications include all print, online and social media accounts (i.e. websites, Linked‐in, Facebook). In keeping with this, all changes to previously approved content must also be pre‐approved. Please ensure that all advertising, newsletters, websites, Linked‐in accounts, Facebook account and other forms of social media accounts are appropriately approved before being released and/or updated. For Approved Persons who are dually registered for life insurance sales or have approved OBA, please also ensure any website specific to the OBA is also reviewed for content.
Once again, we thank you for the quality of your business and ask you to contact your RCO if you have any questions regarding the above.