Dealing rep sanctioned over unauthorized switches, KYC changes

The Mutual Fund Dealers Association of Canada (MFDA) has ordered a B.C.-based dealing representative to pay a $20,000 fine and serve a one-month suspension after it found that she engaged in unauthorized and discretionary trading, and made unauthorized changes to clients’ KYC information.

According to the MFDA settlement agreement pertaining to the case, Laura Lynn Monteiro has been registered in British Columbia with Sun Life Financial Services since 2005.

In March 2016, the firm instituted a new concentration risk policy requiring that clients should not hold more than 20% of their investments in high-risk mutual funds in their account. To adhere to that policy, all approved persons were told to ensure that their KYC records were updated for each client, and that holdings in client accounts were properly rebalanced by January 31, 2017.

Following a review in December 2016, the firm found a dozen of Monteiro’s clients had accounts that did not appear to be in alignment with the policy. She was told to contact those clients and take appropriate steps to bring their accounts into line.

But according to the MFDA, Monteiro only told her licensed assistant to email the clients between January 23 and January 28, 2017. In those emails, Monteiro requested permission to process mutual fund switches in their accounts, and said she would proceed with the switches if the clients did not respond by a specific date.

Three of the clients did not respond to the emails, and Monteiro did not make any further efforts to communicate and get their authorization. On February 27 and 28, she processed 13 unauthorized switches in these clients’ accounts, and changed their documented investment objectives and risk tolerance information to match the moves she’d made in the clients’ account holdings.

With respect to other clients, Monteiro said she got their permission to make switches in their accounts when she spoke with them between January 8 and February 22, 2017. But because she did not obtain specific instructions on when those switches will be processed, the MFDA said she effectively engaged in discretionary trading, thus violating firm and MFDA rules.

Monteiro also made changes to the KYC information in those clients’ accounts. While she said she spoke with them before making the changes, she admitted that she failed to document their instructions.

In letters sent to the clients, Sun Life asked if any of the KYC information in their accounts was incorrect, and requested that they review and confirm the accuracy of all trading activities in their accounts. None of the clients came back with any responses or reported concerns; the MFDA said there was no evidence that the clients suffered losses or incurred fees, or that Monteiro benefited financially from her conduct.

Aside from the fine and suspension, the MFDA ordered Monteiro to pay $5,000 in costs.