Notice of Commission Approval – Amendments to MFDA Rule 2.4.1 – Payment of Commissions to Unregistered Corporation – Mutual Fund Dealers Association of Canada (MFDA)

 
The Ontario Securities Commission has approved amendments to MFDA Rule 2.4.1 regarding the payment of commissions to an unregistered corporation. In addition, the Alberta Securities Commission, the Manitoba Securities Commission, New Brunswick Securities Commission, Nova Scotia Securities Commission, and Saskatchewan Financial Services Commission approved, and the British Columbia Securities Commission did not object to the MFDA’s proposal. The amendments allow Approved Persons of MFDA Member firms to have remuneration from the Member paid directly to an unregistered corporation, subject to certain conditions. This does not apply, however, in respect of any such remuneration derived from a client in Alberta.

MFDA Members and Approved Persons should note that the Commission’s approval of these amendments permits the MFDA to effect amendments to its own rules that relate solely to the payment to an unregistered corporation of any portion of an Approved Person’s remuneration from business conducted by the Approved Person on behalf of the Member firm. The Commission’s approval does not authorize the unregistered corporation to conduct any trading or advising activities for which the remuneration may have been paid.

Commission staff expect that MFDA Members and their Approved Persons will comply with any and all applicable tax legislation when any portion of an Approved Person’s remuneration, in respect of business conducted by the Approved Person on behalf of a Member firm, is being directed to an unregistered corporation.

The Commission’s approval was given on the condition that the MFDA amends the prescribed form of agreement included in MFDA Member Regulation Notice MR-0002, so that it reflects the terms required in subparagraph (b)(iii) of MFDA Rule 2.4.1, and obtains new signed agreements within one year of the publication of this notice.

The MFDA’s proposal was published for comment on June 19, 2009 at (2009) 32 OSCB 5140. Some changes have been made to the proposal since initially published for comment. These changes include a limitation of the application of paragraph (b) of MFDA Rule 2.4.1 to Approved Persons that act as agents of the Member in compliance with MFDA Rule 1.1.5, and the addition of a provision to deny the application of that paragraph in respect of remuneration derived from a client in Alberta. The MFDA has also summarized the comments it received on the proposal and provided responses. A blacklined copy of MFDA Rule 2.4.1 showing the changes to the version published in June 2009, and the MFDA’s summary of comments and its responses, are included in Chapter 13 of this Bulletin.