The Mutual Fund Dealers Association of Canada is seeking to exempt reps from delivering leverage disclosure when it’s not relevant.

The MFDA is proposing amendments to its rules that would limit delivery of the leverage risk disclosure document to instances in which leverage is being recommended to the client, or when a rep becomes aware of a client borrowing money to invest. It will also provide an exemption for RRSP loans.

The proposed amendments will reduce potential client confusion associated with receiving a document that may not be relevant to client circumstances on account opening, it says.

The MFDA reports that it received comments from dealers requesting that the rules be amended to require leverage risk disclosure only when it is relevant; and they also requested an amendment to exempt RRSP loans from the disclosure requirements “because the risks are significantly lower and mitigated by the presence of contribution limits for these investments and the availability of a tax refund.”

However, the MFDA reports that it has observed that clients fail to fully understand the risks of leveraging as a result of not having been provided with a balanced presentation of such information prior to borrowing to invest. So, in conjunction with the proposed amendments to reduce delivery obligations, MFDA staff will be revising the prescribed risk disclosure language to provide a brief explanation of key risks and relevant considerations in plain language.