The Mutual Fund Dealers Association of Canada has issued a notice to remind its members that it is against the rules to obtain pre-signed forms from their clients.

Members may only use forms that are duly executed by the client after information on the form has been properly completed, it says. In the past, the MFAD has warned firms that if it finds pre-signed forms in the course of completing compliance reviews, these deficiencies may be referred directly to the MFDA Enforcement Department.

“Despite providing these cautions, MFDA staff continues to find evidence of pre-signed forms, resulting in referrals to Enforcement,” it reports.

Some examples of pre-signed forms it has uncovered include: blank trade order forms, cheques or account application forms pre-signed by clients, or blank pre-signed forms indicating branch manager or head office approval that have no other information filled in. “In other cases, information on legitimately completed and signed forms may be subsequently altered or removed, or signatures may be physically cut from other documents and then used to create photocopied forms that appear to have been signed by the client,” it says.

The notice says that the existence of pre-signed trade order forms in client files may be evidence that a rep is engaging in discretionary trading, which is not allowed under securities legislation and MFDA rules.

The MFDA says that some firms and reps have taken the position that pre-signed forms can be used appropriately in certain situations strictly for the convenience of a client. Its’ staff does not agree with this position. “Even in cases where there is no evidence of intent to use a pre-signed form for the purpose of discretionary trading, the use of such forms must be prohibited in part because their existence destroys the integrity of the audit trail for activity in the relevant client’s account,” it says.

MFDA dealers may accept a limited trading authorization from a client for the express purpose of facilitating trade execution, it allows.

Additionally, firms are expected to develop policies and procedures that are designed to detect and prevent the use of pre-signed forms and discretionary trading and are urged to address these issues as a priority, it says.