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IFB 2017 Toronto Fall Summit

In case you missed it: news and insight on compliance exams, signature falsification, and the proposed ban on embedded commissions from the Independent Financial Brokers of Canada Toronto Summit in Mississauga, Ont., Nov. 7-8.  Photo copyright: kasto/123RF.

From the Regulators

Infractions range from the use of blank forms signed in advance by the client to actively signing the client’s name

By Megan Harman |

 

The Mutual Fund Dealers Association of Canada (MFDA) says some financial advisors are falsifying client signatures, and the self-regulatory organization (SRO) is warning advisors about the consequences of engaging in this practice.

At the Independent Financial Brokers of Canada's Fall Summit in Mississauga, Ont. on Tuesday, Marc Guerin, director of member education at the MFDA, said the SRO is seeing a growing number of instances of signature falsification among the mutual fund sales representatives at its member firms. 

Under the MFDA's recently updated definition, signature falsification takes place in two ways:
> pre-signed forms, which involves advisors having clients sign a form that is blank or only partially completed, or altering an existing signed form without the client's initial on the changes;


> actively falsified forms, in which advisors sign the client's name or initials on a document, or reproduce the signature in some way.

Last year, 60 of the MFDA's disciplinary proceedings involved a signature falsification allegation, according to Guerin. That's up from 38 proceedings in 2015.

In some cases, he added, signature falsification is being used by advisors to engage in more serious regulatory infractions, such as unauthorized trading and misappropriation of funds.

In 2015, the Canadian Securities Administrators (CSA) flagged signature falsification as a problem area for the MFDA, and urged the SRO to pursue a higher level of enforcement in this area. As a result, the MFDA has recently stepped up its disciplinary action in this category.

"It's not just a priority of the MFDA," Guerin said. "It's something that has the attention of the entire CSA."

Recent disciplinary decisions by the MFDA include a one-year prohibition against a rep who had obtained, possessed and used more than 200 pre-signed account forms over a two-year period, and a $1,500 fine and six-month prohibition handed down to a branch manager who had reviewed and approved the use of three forms with falsified signatures.

When deciding on disciplinary action in cases of signature falsification, the MFDA will consider factors such as whether the incident resulted in harm to the client, the number of times the advisor engaged in the practice, and whether the advisor tried to mislead the MFDA during the investigation, according to Guerin.

Some advisors argue that their clients gave consent for the advisor to reproduce the signature or use a blank signed form in the interest of convenience, Guerin said. But even with client authorization, the practice is prohibited.

Advisors also can be disciplined if a member of their support staff engages in signature falsification, Guerin added.

"You definitely want to make sure that not only are you aware of it, but anybody that's working for you or helping you understands the risk, and understands that they cannot do this, even if it's to correct a mistake or something along those lines," he said.

Once an advisor has been disciplined by the MFDA, Guerin noted, the disciplinary information remains on the SRO's website indefinitely, which can cause permanent damage to the advisor's reputation.

To avoid signature falsification, Guerin urges advisors to ensure their support staff is properly trained and supervised, double check that all forms are completed properly before submitting them, and have a Limited Trade Authorization form on file, which enables advisors to take trade instructions via phone.

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