The Mutual Fund Dealers Association has issued a notice that’s intended to clarify the obligations of its members and their reps when managing of conflicts of interest.

It notes that its conflicts rule has been amended to clarify the role of reps in the management of conflicts. “Approved Persons are important points of contact with clients and play an important role in ensuring that conflicts that arise in dealing with clients are properly managed,” it says. The notice adds that it is important that reps notify their firms when they identify a potential conflict of interest and support the firm “in taking appropriate action to ensure that the conflict is addressed in the best interests of the client”.

The rule concerning conflicts is meant to provide MFDA firms, “with a broad principle under which specific standards are to be created to manage and resolve conflicts”, it says.

The rule includes two parts: a requirement that written disclosure be provided to clients regarding potential conflicts that have been identified, and an obligation to address the conflict by the exercise of responsible business judgment, influenced only by the best interests of the client.

“In applying the rule in practice, MFDA staff takes the position that the concept of materiality is implicit in the rule,” it says. “MFDA staff does not expect members to anticipate every potential conflict, regardless of the remoteness of a problem arising, and provide written disclosure to clients of such conflicts. However, written disclosure must be provided in all cases where there is a reasonable likelihood that a client would consider the conflict important when entering into a proposed transaction.” The notice says this would include a situation where a rep refers a client to a company in which the rep has an ownership interest for tax preparation services.

“In some cases, general disclosure to clients at one point in the relationship may be enough. In other cases, ongoing disclosure, or disclosure specifically related to the timing of a transaction, may be required,” it says.

The notice points out that the MFDA rules and provincial securities legislation provide specific conflict disclosure requirements in certain cases. “Compliance with these specific requirements will often be sufficient to discharge the disclosure responsibilities,” it says. “However, in all cases involving conflicts or potential conflicts of interest, the member must apply the exercise of responsible business judgment.”