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Originally published: September 5, 2019
This article is part of the Investor Office series of discussions with key figures in Canada’s financial services industry whose work impacts investors. The views expressed in this article are entirely those of Mark Gordon and are not intended to represent the views of the Investor Office or the Ontario Securities CommissionOntario Securities Commission An independent Crown corporation that is responsible for regulating the capital markets in Ontario. Its mandate is to provide protection to investors from unfair, improper or fraudulent practices, to foster fair and efficient capital markets and confidence in capital markets, and to contribute to the stability of the financial system and the reduction of systemic…+ read full definition.
Catching up with Mark
We first sat down with Mark in 2016 to talk about his background, his role at the MFDA and the work of the MFDA. Read the 2016 interview.
We recently sat down again with Mark to catch up on some of the latest priorities and developments at the MFDA.
On recent priorities and developments…
Our focus continues to be on investor protection. As a business conduct regulator, one of the ways we protect investors is by making sure regulatory rules are being followed. We accomplish this through “boots on the ground” regulation. We perform regular in-person compliance examinations of our member firms. We do this in order to make sure both registered firms and their representatives are meeting the standards that are expected of them, such as financial requirement rules, suitability-related rules like the know-your-client and know-your-product rules, as well as conflict of interest rules.
To protect investors we also need to have transparent, firm and fair enforcement. We can investigate situations where registered firms or their representatives may have breached our requirements. And, if there is a breach, we have a process to hold them accountable. We have strict disciplinary measures, which can include significant fines and a permanent ban from the industry. In fact, I think we’ve been the busiest in the last two years in terms of the number of enforcement cases we’ve handled. In 2018, there were 136 proceedings commenced, a 12% increase from 121 proceedings in 2017.
Another important development since we last spoke is the release of the MFDA Strategic Plan (2018-2022) which includes supporting member firm innovation and strengthening collaboration with key stakeholders, including investors, as well as an initiative to establish a continuing education requirement for all MFDA advisors.
On MFDA continuing education…
We want to enhance member and advisor education. MFDA advisors should continue to remain current on their financial knowledge and maintain high standards of professionalism, and that’s why we’re working on a continuing education requirement.
I can tell you that it will be one of the most robust continuing education regimes in Canada. We had extensive consultations with the industry, dealers, course providers, investors, and other regulators. Advisors will earn credits from courses accredited by the MFDA in areas such as business conduct, professional development, and compliance.
Client Research Report
Our report, MFDA Client Research Report: A Detailed Look Into Members, Advisors and Clients, provided us with an unprecedented look at retail investors. This project was a major initiative and the first of its kind for any regulator in Canada. We collected anonymized, objective data which gave insights into investor demographics, the general geographic breakdown of where they live, and the kinds of products they investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition in.
One important fact that we learned from the Client Research Report is that MFDA member firms provide services to 56% of Canadian households, which is 8.9 million households, and of these households, 83% have less than $100,000 in financial assets. This means that a large proportion of MFDA Members clients are average Canadian retail investors, and as a regulator, the MFDA helps to protect these everyday investors.
Another important aspect of the Client Research Report is that we are able to use the data to better protect investors and inform our regulatory approach. It enables us to identify pockets of investors that may be more vulnerable, such as seniors. It also allows us to identify areas of concentration of higher-risk products held by investors and to understand the kinds of products firms are selling.
We’re going to update this data in the near future and include two new data points related to investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition cost and performance reporting.
The MFDA’s third Seniors Summit will be held in the fall of 2019. It’s a full-day conference where subject matter experts will provide guidance and updates on how to best serve and protect investors who are seniors. Topics include the changing nature of advice, financial needs in retirement, and handling situations where a client may be suffering from diminished capacity. We want to make sure that seniors are protected from financial abuse and that firms have the right knowledge and tools.
We’re looking into the development of a “safe harbour” policy with the Canadian Securities Administrators (CSA)Canadian Securities Administrators (CSA) The Canadian Securities Administrators (CSA) is an umbrella organization of Canada’s provincial and territorial securities regulators whose objective is to improve, coordinate and harmonize regulation of the Canadian capital markets+ read full definition, which includes the OSCOSC See Ontario Securities Commission.+ read full definition. It will give registered firms and their representatives the tools to help protect investors, including seniors, who may be at greater risk of financial exploitation. As part of this initiative, we’re also looking to put in place a trusted contact process in which registered firms and their representatives would have to provide clients with an option to name a trusted contact person to contact in emergency situations where there are reasonable grounds to suspect financial exploitation of the client or other issues of concern.
We’ve revamped our outreach strategy. We’ve recently completed one-on-one interviews and focus groups with our Members to get feedback on many of the issues I’ve talked about. Our recent outreach initiatives will also enhance collaboration with investors and other stakeholders with whom we have regular meetings to discuss new or proposed initiatives or policies.
Total cost reporting
Another major policy initiative that we’re working on with the CSA is total cost reporting. In particular, we’ve begun preliminary work on behalf of the CSA and other stakeholders that will assist with this initiative. Right now, investors get a report setting out the annual summary of charges paid to the dealer, but it does not reflect the total cost of ownership of a mutual fundMutual fund An investment that pools money from many people and invests it in a mix of investments such as stocks and bonds. A professional manager chooses investments that match the fund’s goals for risk and return. You can redeem your fund units at any time.+ read full definition. We need to make sure there’s disclosure on the cost of the product as well as the cost of advice. Investors deserve to know the full cost.
Any final thoughts?
As a national self-regulatory organization, we think it is best that we put policy in place that benefits all Canadians, regardless of the registrationRegistration A requirement for any person or company trading investments or providing advice in Canada. Securities industry professionals are required to register with the securities regulator in each province or territory where they do business.+ read full definition category or the specific regulated financial sectorSector A part of the economy where businesses provide the same or related products or services. May also refer to a group.+ read full definition. The bottom line is like-conduct should be subject to like-regulation.
I encourage investors to visit mfda.ca/investors for educational materials. You can subscribe to our investor bulletins to stay on top of the regulatory initiatives that are happening at the MFDA. You can also find our previous bulletins and links to educational materials from other regulators, including the OSC. Investors can also follow us on Twitter at @MFDA_News.