OSC Staff Notice of Commission Approval – Proposed Amendments to MFDA Rule 5.3 (Client Reporting) – Mutual Fund Dealers Association of Canada (MFDA)

Market Regulation Document Type
MFDA rule review

The Ontario Securities Commission approved the MFDA's amendments to MFDA Rule 5.3 (Client Reporting). The Alberta Securities Commission, Saskatchewan Financial Services Commission, Manitoba Securities Commission, Nova Scotia Securities Commission and New Brunswick Securities Commission have approved the amendments, and the British Columbia Securities Commission did not object to the MFDA's amendment.

Summary of Material Rule

The amendments require Members to deliver account statements to clients at least once every three months for both client name and nominee name accounts. The amendments will ensure that Members are subject to consistent requirements in respect of the frequency of account statement delivery under both MFDA Rules and NI 31-103. The amendments will harmonize the delivery requirements for accounts held in client and nominee name.

The amendments also deletes Rule 5.3.2 (Automatic Payment Plans) which requires Members to send a quarterly statement to clients for automatic payment plan transactions held in nominee name. This requirement is no longer necessary as quarterly statements will be required for all accounts.

Summary of Public Comments

The OSC published the amendments for comment on October 28, 2011 at (2011) 34 OSCB 11029 for a 30-day comment period. The MFDA received one public comment letter. We attach the MFDA's summary of public comments received and responses as Attachment A.

 

Attachment A

Summary of Public Comments Respecting Proposed Amendments to MFDA Rule 5.3 (Client Reporting) and Responses of the MFDA
 

On October 28, 2011, the British Columbia Securities Commission published proposed amendments to MFDA Rule 5.3 (Client Reporting) (the "Proposed Amendments") for a 30-day public comment period that expired on November 28, 2011.

One submission was received during the public comment period:

  • Advocis

A copy of the comment submission may be viewed on the MFDA website at: http://www.mfda.ca/regulation/comments.html#5-3.

The following is a summary of the comments received, together with the MFDA's responses.

Quarterly Reporting Requirement for Nominee Name Accounts

Advocis noted that the Proposed Amendments will result in clients with nominee name accounts, who currently receive a statement for any month when there is activity in their account, receiving reports only quarterly, and expressed the view that this reduction in the frequency of reporting may not be appropriate. The commenter suggested that certain clients with nominee name accounts rely on the receipt of monthly statements, and if the Rule is amended as proposed, they may wonder why they no longer are receiving statements for months when they have activity and instead are only receiving quarterly statements.

Advocis recommended that the MFDA conform its Rule to the minimum requirements in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103") without eliminating monthly reporting for nominee name accounts for months when there has been activity. The commenter suggested revising the Proposed Amendments so that the Rule continues to provide for reporting at least once every month for a nominee name account for months when there is activity in the account, but in any event no less frequently than once every quarter.

MFDA Response

As described in the Notice of Request for Comments, the Proposed Amendments are intended to ensure that requirements under MFDA Rules are consistent with those under NI 31-103. Staff is of the view that quarterly reporting is appropriate given the nature of mutual funds, which are not intended to be frequently traded securities. In addition, where there is a transaction in the month, clients will receive a trade confirmation for that transaction. Further, there is no reason to distinguish between client name and nominee name accounts with respect to frequency of reporting. The Proposed Amendments constitute minimum standards and Members may choose to provide more frequent reporting to clients where Members feel it is appropriate.