An Ontario-based mutual fund dealer has been fined $10,000 by the Mutual Fund Dealers Association of Canada for failing to supervise the trading activity of its reps and failing to conduct reasonable due diligence on exempt securities, among other regulatory breaches.

At a settlement hearing in Toronto on Friday, an MFDA hearing panel accepted a settlement agreement with Excel Financial Growth Inc., a mutual fund dealer and limited market dealer with offices in Markham, Ontario and Richmond, B.C.

The firm admitted that between August 2005 and May 2008, it failed to comply with a number of MFDA rules.

First, the firm failed to establish, implement and maintain an adequate two-tier supervision structure to supervise the trading activity of approved persons at its B.C. branch. In some instances, Excel also failed to review the trading activity and new client account openings of branch managers, the MFDA found.

The firm also failed to maintain evidence of head office review of trades, and of branch manager review and approval of new client accounts.

Furthermore, Excel failed to establish, implement and maintain adequate policies and procedures to conduct reasonable due diligence on exempt securities, and to supervise the sale of exempt securities to clients, the MFDA found. Specifically, the hearing panel found that the firm sold exempt securities to clients without ensuring that the exempt securities were suitable for the clients and in keeping with their investment objectives.

Lastly, the regulator found that the firm failed to establish, implement and maintain adequate policies and procedures at head office to detect excessive trading and market timing.

The MFDA noted that in a compliance examination conducted earlier this year, Excel had made some changes to its policies and procedures in an effort to comply with MFDA rules, but that the deficiencies identified in 2008 had not been fully resolved.

As part of the settlement agreement, Excel has paid a fine $10,000 and costs of $2,500. The firm is also required, within three months, to implement policies and procedures to fully resolve the compliance deficiencies identified by the MFDA.

IE