The Mutual Fund Dealers Association of Canada (MFDA) has issued new guidance that aims to bring mutual fund dealer outsourcing arrangements under consistent regulatory oversight.
An MFDA notice, MFDA Member Intermediary Arrangements, published Wednesday aims to clarify the self-regulatory organization’s approach to certain outsourcing arrangements that fund dealers may use for services such as trade execution, custody, settlement and record keeping.
Some firms structure these arrangements as introducing/carrying dealer relationships, while others structure them as service arrangements.
According to the notice, this division creates an unlevel playing field, since introducer-carrier arrangements involve firms that are registered and subject to regulatory oversight, but service arrangements may not.
The divide also create disparities in contingency fund coverage for clients, risks fund dealer reps providing advice beyond the limits of their registration. In addition, it raises possible issues with client reporting, including the reports that must be made to clients under the client relationship model reforms on the cost and performance of client portfolios.
Given these concerns, these kinds of outsourcing arrangements “… should be entered into as introducing/carrying dealer arrangements … as opposed to service arrangements ,” the MFDA notices states.