Ontario-based firm did not take adequate steps to vet certain exempt market products, finds MFDA
The Mutual Fund Dealers Association of Canada (MFDA) has fined an Ontario-based dealer firm $30,000 for failures in its KYP obligations related to certain exempt market products.
According to a settlement agreement document dated December 12, the MFDA said Queen Financial Group has been a member of the MFDA since October 2006, and is also currently registered as a mutual fund dealer in BC. It is also registered as a limited market dealer or exempt market dealer in Ontario, BC, and Quebec.
In 2019, MFDA staff subjected the firm to a sales compliance examination. They identified numerous deficiencies with respect to the sale of certain exempt market products, such as:
- Failure to obtain offering documents, term sheets, and financial statements;
- Not documenting the precise investment structure of the products; and
- Not obtaining enough information to determine some products’ investment objectives, the nature and extent of potential conflicts of interests, and the costs to investors of holding some of the products.
The products, which were sold to clients between 2017 and 2019, included investments in limited partnerships, mortgage investment corporations, and trust units.
“KYP Deficiencies limited the Respondent’s ability to provide the necessary direction and supervision to Approved Persons to ensure that it was fulfilling its suitability obligations,” the MFDA said.
After receiving a report from the MFDA about the deficiencies in April 2020, the firm prepared a template document outlining the information needed to evaluate exempt market products before being approved for sale by its approved persons.
But even after that, Queen Financial Group did not complete the template to the extent needed to address its KYP deficiencies.
The MFDA found no evidence that the firm’s misconduct caused financial harm to clients. It also acknowledged that investors in the products received documentation warning of certain risks associated with the products.
To ensure it complies with all its KYP obligations and all new products are sufficiently vetted moving forward, the firm has hired a new compliance officer with specific experience with exempt market products.
Queen Financial Group has also agreed to pay $7,500 in costs.
