IN THE MATTER OF THE SECURITIES ACT,
R.S.O. 1990, C.S.5, AS AMENDED;
IN THE MATTER OF THE STATUTORY POWERS PROCEDURE ACT,
R.S.O. 1990, C.S.22, AS AMENDED;
IN THE MATTER OF
Assante Financial Management Ltd.
1. Staff of the Ontario Securities Commission and Assante Financial Management Ltd. propose to settle this matter under section 5(1) of Practice Guidelines  - Settlement Procedures in Matters before the Ontario Securities Commission of the Ontario Securities Commission Rules of Practice.
2. Assante Financial Management Ltd. acknowledges that the facts set out in Part III of this Settlement Agreement are correct.
3. Assante Financial Management Ltd. was incorporated in 1985 under the laws of Ontario. In 2000 and 2001, several mutual fund dealers were integrated into Assante Financial Management Ltd. Assante Financial Management Ltd., including its integrated businesses ("AFM"), has been operating as a mutual fund dealer in Canada since the mid 1980's.
4. On July 10, 2001, a mutual fund dealer which was subsequently integrated into AFM in October 2001, advised the Registration Department of the OSC that one of its advisors was servicing approximately ten to fifteen accounts for Ontario clients without being registered in Ontario.
5. On October 18, 2001, after the integration of this mutual fund dealer into AFM, AFM sent an internal compliance directive to all of its sales people. The Directive restricted all AFM advisors from advising, recommending or conducting trades for out-of-province clients unless the advisor was registered in the province where the client resided. The Directive imposed a deadline of October 29, 2001 for its advisors to either apply for registration or transfer their clients to another advisor.
6. Although AFM represented to the OSC that it had implemented a procedure to address the unregistered trading issue, many AFM advisors had not complied with the Directive.
7. On February 19, 2002, in response to a section 19(3) order issued by the OSC, AFM advised the OSC that approximately 50 salespeople located at the mutual fund dealer described in paragraph 4 had served between 150 and 200 Ontario clients between January 1, 2000 and August 31, 2001 without being registered in Ontario. This conduct occurred prior to the integration of that mutual fund dealer into AFM in October 2001.
8. On July 11 and 12, 2002, in response to inquiries from Staff, AFM advised the OSC that as of July 12, 2002, a total of 152 of about 800 AFM sales people were trading on behalf of Ontario clients without being registered in Ontario.
9. On May 26, 2003, AFM advised the OSC that it had addressed the out-of-province trading issue. In particular, AFM told the OSC that by October 2002 the 152 salespeople who had been trading on behalf of clients resident in Ontario without being registered in Ontario had: applied for registration, transferred their Ontario clients to advisors registered in Ontario or transferred their clients to the AFM house account for re-assignment to an AFM advisor registered in Ontario.
IV. Conduct Contrary to the Securities Act
10. In failing to ensure that its salespeople did not trade on behalf of clients resident in Ontario without being registered in Ontario between January 1, 2000 and October 2002 contrary to subsection 25(1) of the Act, AFM failed to supervise its registered salespersons contrary to s. 3.1 of Ontario Securities Commission Rule 31-505.
11. In failing to enforce it’s Directive between October 18, 2001 and October 2002 and thereby allowing its representatives, who were not registered in Ontario to maintain accounts with Ontario residents, AFM failed to enforce written procedures that conform with prudent business practice contrary to s.1.2 of Ontario Securities Commission Rule 31-505.
IV. POSITION OF AFM: MITIGATING FACTORS
12. The following are mitigating factors which should be considered in relation to this settlement agreement:
a) By October 2002, all 152 AFM advisors had:
(i) applied for registration in Ontario;
(ii) transferred their Ontario clients to advisors registered in Ontario; or
(iii) transferred their clients to the AFM House Account for re-assignment to an AFM advisor duly registered in Ontario (this was imposed on the advisor by the firm if option (i) or (ii) was not taken by a date specified by AFM).
b) In March 2003, the OSC completed a review of AFM under s. 20 of the Securities Act. Any deficiencies relating to advisor registration have been satisfactorily addressed.
c) AFM co-operated with the OSC throughout the investigation;
d) One of AFM's integrated businesses reported the breach of registration requirements relating to one of its advisors to the OSC;
e) AFM conducted a comprehensive audit of all of its branches. This branch audit program included a review of how individual branches and branch managers monitored and dealt with out-of-province clients.
f) AFM appointed a dedicated Project Manager responsible for out-of-province client issues;
g) AFM established written procedures and operational controls to address out-of-province trading.
i. AFM introduced a New Client Application Form that requires an advisor opening an account to indicate whether he or she is registered in the province in which the client resides. This information is tested by AFM’s operational controls.
ii. AFM implemented account opening procedures which include a review of new Ontario client accounts to determine whether the advisor is registered in Ontario;
iii. AFM incorporated the Directive into the AFM Compliance Manual making it clear that trading for out-of-province clients is not permitted and imposed immediate restrictions on trading for such clients;
V. TERMS OF SETTLEMENT
13. AFM agrees to the following terms of settlement:
a) AFM undertakes to submit to an external review of its policies, procedures and internal controls regarding out-of-province trading;
b) AFM undertakes to retain an external auditor (the "Auditor") to conduct the review;
c) AFM undertakes to direct the Auditor to examine AFM’s relevant policies and procedures and to test its internal controls regarding out-of-province trading;
d) AFM undertakes to engage the Auditor as soon as reasonably practicable after the signing of this agreement and to direct the Auditor to report to AFM within 90 days from the date of the Auditor's engagement and make recommendations, if necessary;
e) AFM undertakes to provide the Manager of Compliance of the OSC with a copy of the report;
f) AFM undertakes to review the Auditor's recommendations and to develop an implementation plan for recommendations necessary to comply with securities law as soon as reasonably practicable following receipt of the report;
g) AFM undertakes to report to the Manager of Compliance of the OSC the steps taken to implement the Auditor's recommendations to comply with securities laws;
h) AFM undertakes to pay the cost of the review and the cost associated with the implementation of recommendations necessary to comply with securities law.
14. AFM agrees that it will not, in any proceeding, refer to or rely on this Settlement Agreement, settlement discussions/negotiations or the process of obtaining the Executive Director’s consent to this Settlement Agreement as the basis for any challenge to the Commission’s jurisdiction, allegation of bias or appearance of bias, allegation of unfairness or any other remedies or challenges that may otherwise be available.
VI. STAFF COMMITMENT
15. If this settlement receives the consent of the Executive Director, Staff will not initiate any other proceedings under the Securities Act against AFM in relation to the facts set out in Part III.
16. If this settlement receives the consent of the Executive Director, and AFM fails to fulfill any of the settlement terms, Staff may initiate proceedings against AFM in relation to the facts set out in Part III and/or refer to this Settlement Agreement in any future proceeding.
VII. APPROVAL OF SETTLEMENT
17. If, for any reason, the Executive Director does not consent to this settlement:
a) this Settlement Agreement and its terms, including all discussions and negotiations between Staff and AFM leading up to the execution of this Settlement Agreement, shall be without prejudice to Staff and AFM;
b) Staff and AFM shall be entitled to all available proceedings, remedies and challenges, including proceeding to a hearing of these matters before the Commission, unaffected by this Settlement Agreement or the settlement discussions/negotiations; and
c) The terms of this Settlement Agreement will not be referred to in any subsequent proceeding, or disclosed to any person, except with the written consent of Staff and AFM or as may be required by law.
VIII. DISCLOSURE OF SETTLEMENT AGREEMENT
18. This Settlement Agreement and its terms will be treated as confidential by Staff and AFM until consented to by the Executive Director, and forever, if for any reason whatsoever this settlement is not consented to by the Executive Director, except with the consent of Staff and AFM, or as may be required by law.
19. Any obligation of confidentiality shall terminate upon receiving the Executive Director’s consent to this settlement.
20. Staff and AFM agree that if the Executive Director does consent to this settlement, they will not make any public statement inconsistent with this Settlement Agreement.
IX. EXECUTION OF SETTLEMENT AGREEMENT
21. A facsimile signature is effective as an original signature.
DATED this 11th day of November, 2003
ASSANTE FINANCIAL MANAGEMENT LTD.
Stephen Ellis, President
Brent Moore, Vice President, Compliance
STAFF OF THE ONTARIO SECURITIES COMMISSION
(Per) “Michael Watson”
I hereby consent to the settlement of this matter on the terms contained in this Settlement Agreement.
Dated November 19th, 2003
(Per) “Charlie Macfarlane”