The Mutual Fund Dealers Association of Canada (MFDA) has issued a fine of $1.7 million against Waterloo, Ont.-based Sun Life Financial Investment Services (Canada) Inc., for supervision failings involving leveraged accounts, suitability and other compliance deficiencies.
In a settlement hearing held in Toronto on Wednesday, an MFDA hearing panel approved the settlement agreement with the mutual fund dealer arm of Toronto-based Sun Life Financial Inc.
The hearing was the result of problems identified during compliance examinations that took place in 2013 and 2015, as well as subsequent violations identified since then.
Specifically, Sun Life admitted that between April 2013 and June 2015, it failed to adequately supervise leveraged accounts and concentration risk. In particular, the MFDA found that Sun Life’s supervisory staff failed to take adequate steps to resolve cases of leveraged accounts that did not meet the firm’s leveraging guidelines, and approved leveraging in some accounts even though insufficient information was available to adequately perform a suitability assessment, among other deficiencies.
“As a result of these deficiencies, leveraging recommendations which may have been unsuitable were processed by [Sun Life] without proper supervision,” the settlement agreement says.
The hearing panel also found that Sun Life’s supervisory staff did not take adequate steps to resolve certain cases in which concentration limits were exceeded in client accounts.
In one example, the MFDA found that an advisor had approximately 96% of assets under administration invested in natural resource and precious metals sector funds. Furthermore, know your client (KYC) information was nearly identical for a large proportion of the advisor’s clients, with risk tolerance at “100% high” and an investment objective of “100% aggressive growth” for nearly all client accounts.
“[Sun Life] did not query [the advisor’s] client accounts that exceeded its concentration guidelines or did not take adequate steps to resolve cases where it did inquire about concentration issues in client accounts,” the MFDA settlement agreement states.
Sun Life also admitted that between June 2014 and June 2016, it failed to supervise the suitability of the sale of mutual funds with deferred sales charges (DSC), to ensure they were suitable for clients. For example, the firm’s policies and procedures did not include consideration of the client’s age and time horizon as factors in reviewing trades involving DSC funds, according to the settlement agreement.
The MFDA also found deficiencies with Sun Life’s compliance with rules related to incentives, sales practices and educational practices, dating back to 2002.
For example, the hearing panel identified certain Sun Life sales programs which created incentives for advisors to sell mutual funds offered by Sun Life Global Investments and CI Investments — firms that were related to Sun Life — rather than mutual funds offered by other third parties.
Sun Life also failed to adequately supervise an advisor’s trade that took place in November 2015, in which a client’s assets were transferred into mutual funds that did not match the client’s KYC information.
In addition, the MFDA found that between January 2010 and June 2015, Sun Life failed to report to the MFDA at least seven events involving client complaints, bankruptcy and termination of advisors within the required time frame.
The settlement agreement notes that Sun Life has fully co-operated with the MFDA’s reviews, and has acted proactively in addressing the deficiencies.
In addition to the fine of $1.7 million, Sun Life has agreed to pay costs of $100,000.
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