Negative confirmation will not be considered an acceptable form of client authorization, the Mutual Fund Dealers Association of Canada says.

The MFDA notes in a member regulation notice regarding the issue of bulk transfers that written client authorization is required for account transfers. Moreover, when an account transfer is authorized by the client, the firms involved “shall act diligently and promptly in order to facilitate the transfer of the account in an orderly and timely manner.”

Under a negative confirmation, clients are informed that if they do not wish to have their accounts transferred to another mutual fund dealer they must contact the salesperson or their current mutual fund dealer to confirm their disagreement.

The regulator also notes that the transfer of confidential client information without the prior express consent of the client violates securities law and may also violate confidentiality provisions of federal and provincial privacy legislation.

The MFDA says that it will consider permitting negative confirmation transfers only when a firm ceases business as a mutual fund dealer or surrenders its registration to the applicable securities commissions and resigns from the MFDA. Negative confirmation also will be allowed in the case of corporate reorganizations, mergers and amalgamations when a firm ceases business as a mutual fund dealer and the client is left without representation for their account.

Corporate reorganizations, mergers and amalgamations require prior notification to, and approval by, the MFDA. The proposed procedure to transfer client accounts will be considered as part of the MFDA1s review of the proposed reorganization, merger or amalgamation.

A member ceasing to carry on business as a mutual fund dealer must submit a letter of resignation. As part of the resignation procedure, the member must provide details regarding the orderly transfer of client accounts to another dealer. Clients of the resigning member must be given sufficient advance notice and an opportunity to direct that their accounts be transferred elsewhere.