A notice issued today by The Mutual Fund Dealers Association aims to clarify the obligations of fund dealers and reps regarding outside business activities.

In the notice, MFDA staff report they have encountered a number of situations where reps have engaged in inappropriate outside business activities, “which in some cases have resulted in significant client harm”.

Some of the activities that the MFDA has identified include: securities sold outside of the dealer, including principal protected notes deemed to be securities under provincial legislation; private placements; limited partnerships; other exempt securities; and, referral of securities related business outside of the dealer.

The notice reminds firms and reps that MFDA rules require that all “securities related business” must be conducted through the MFDA member, with exceptions for the sale of deposit instruments not on account of the member and the activities of bank employees conducted in accordance with the Bank Act.

“Securities related business” means any business or activity that constitutes trading or advising in securities for the purposes of applicable securities legislation in any jurisdiction in Canada. This includes securities sold pursuant to exemptions under securities legislation.

Apart from the specific exceptions, it notes that reps are prohibited from personally engaging in the sale of any investments that would be considered securities, or selling or advising on such investments through any entity other than their MFDA dealer (often referred to as “selling away” or “off book trading”).

The notice also spells out acceptable outside business activities; procedures for approving outside business; considerations such as possible conflicts of interest, client service issues, standards of conduct, and supervisory issues; and, ongoing dealer obligations to monitor outside businesses.