The Mutual Fund Dealers Association today issued a notice reminding firms of their obligations when holding client assets in nominee name.

The MFDA reports that during its second round of on-site financial compliance examinations, its staff continued to discover deficiencies relating to the requirement to reconcile all nominee name assets on at least a monthly basis to third party documentation. “While members appeared to be adequately complying with these requirements for mutual funds transacted through FundSERV, reconciliations may not have been performed on investment products distributed outside of FundSERV, such as GICs, limited partnerships, Labour Sponsored Investment Funds, and some hedge funds,” it notes.

These requirements apply to all MFDA members holding client assets in nominee name and include all members holding client assets in their capacity as agent for the trustee of self-directed registered plans.

MFDA policy requires dealers to produce a report from their trading system of client securities owned by clients but registered in the name of, or held by, the member that require segregation and then reconcile the report to third party information to identify deficiencies. Also, it says that if third party documentation is not obtained and/or reconciliations are not being done on a monthly basis, the dealer is required to take a margin provision on its regulatory capital equal to 100% of the market value of the assets held on behalf of clients plus the applicable margin rates related to the securities.