Regulator says that more than $1M payments may have been missed over 20 years
Clients of a Canadian mutual fund dealer may have lost more than one million dollars due to the firm’s lack of control and supervision of requests for Canadian Education Savings Grant (CESG) payments.
Royal Mutual Funds Inc. a dealer member of the Canadian Investment Regulatory Organization (CIRO) admitted at a CIRO hearing panel that between October 2001 and May 2021 it failed to establish and maintain suitable procedures to ensure that requests for CESG payments were submitted for eligible client accounts.
The firm was fined $125,000 and must also pay $10,000 in costs.
The settlement agreement between the regulator and the firm states that Royal Mutual Funds’ clients would have the option to request CESG applications as part of the RESP account opening process, but this relied on staff checking a box when adding clients’ personal information to the firm’s back office system.
The CESG program, designed to encourage Canadians to save for their education as part of the Canada Education Savings Program, is administered by Employment and Social Development Canada which in September 2020 conducted a review of all registered promoters of CESG, including RBC which submitted applications on behalf of Royal Mutual Funds when they were correctly requested.
After reviewing 30 Royal Mutual Fund RESP accounts, ESDC determined that in 16 instances, the CESG had not been requested on behalf of RESP accounts where the clients had provided the required information and executed the necessary documents to apply for the CESG.
When going back to 1998, Royal Mutual Funds discovered 1,475 RESP accounts that were eligible for the CESG but where it had not been requested, meaning approximately $1,045,046 in missed CESG payments (the exact figure would depend on ESDC discretion on eligibility.)
Upon the findings the firm requested payments from ESDC where it was still possible to do so, a total of $295,405, and also made compensatory payments of $749,641 where the missed payments could no longer be claimed from the Canada Education Savings Program.
The firm also reported the matter to CIRO once it had been identified by ESDC and acted to bolster its controls and supervision of the CESG application process. Its admission of misconduct saved the regulator time and resources as noted in the settlement agreement.
