Changes to a Mutual Fund Dealers Association of Canada (MFDA) bylaw are not sitting well with the Independent Financial Brokers (IFB) and some advisors. Under the amendments, the MFDA can hold an enforcement regulatory hearing without notifying the advisor in question.
According to the amendments to the ‘Applications in Exceptional Circumstances’ section of By-Law No. 1, some of the situations in which the panel is not required to give notice are:
• An advisor failing to cooperate with the investigation or examination;
• The MFDA “receiving information regarding the incapacity of the person, by reason of mental or physical illness, other infirmity or addiction to or excessive use of alcohol or drugs” ;
• Notifying the person about the pending hearing would likely result in financial loss or imminent harm to the public, MFDA members or the MFDA itself;
• The length of time required to arrange for, and conduct, a hearing “would be prejudicial to the public interest.”
The IFB finds the changes too broadly worded and argues too many crucial points will be left to the interpretation of the MFDA and the participants of the hearing panel.
“We objected because we felt there needed to be a clearer definition around what constitutes ‘imminent harm’ to the public and some of the objectionable categories that were used when it comes to the MFDA proceeding without notice,” Susan Allemang, the IFB’s manager of regulatory affairs, told Advisor.ca.
Claiming the MFDA now has more power than its own regulator — the Ontario Securities Commission — Allemang wonders who’s going to adjudicate, for example, what is meant by the “excessive use of alcohol or drugs.”
“Our primary concern is establishing a system of procedural fairness, where all the parties have the ability to be represented and to defend themselves in an open and transparent way,” said Allemang. In her mind, a situation would have to be extremely unusual for the MFDA not to provide an advisor adequate notice of their hearing.
That’s exactly what the MFDA believes as well, said Shaun Devlin, vice-president of enforcement.
“Our preference in applying that bylaw would be to do so with notice. It would be a very rare situation indeed when we would not,” he said. “It would be a situation where there was such harm that provisions had to be placed to stop the conduct pending a full hearing. The powers under that section of the bylaw are wide but they include things that don’t result in taking away someone’s license. Taking away someone’s license would be a last resort.”
Devlin assures advisors there are adequate checks and balances in place to make sure the powers under the bylaw are not abused. The MFDA has not sought the right to proceed without notification in any case since the amendments were approved.
“It is important to remember that we cannot just apply for these orders and get them. Our hearing panel has to decide the order is fair,” he said. “Don’t be mistaken; we have to put evidence in place and we are under a duty to present evidence fairly.”
Responding to Advisor.ca’s online poll , our readers voted in favour of the MFDA giving advisors adequate notice — 57% voted for granting advisors more than a month’s notice, while 35% wanted to see at least one month. Only 1% thought advisors deserved no notice at all.
Read: IFB voices compensation concerns
(02/10/10)