Mutual fund dealers’ supervision activities are falling short of regulatory requirements, the Mutual Fund Dealers Association is finding.

Ken Woodard, director of communication and membership services at the MFDA, said on Tuesday that the regulator continues to find situations where there isn’t adequate evidence of supervision taking place at member firms.

“It’s still an area where we’re finding weakness within member firms,” he said, speaking at the Independent Financial Brokers summit in Toronto.

MFDA rules require member firms to maintain records of all supervisory activities. Woodard said that recently, the regulator has identified a number of deficiencies in this area. For example, he said the MFDA often finds that firms aren’t able to provide evidence of inquiries made, or of follow-up and resolution.

The MFDA is working on a guide to help firms develop policies and procedures that would allow them to more effectively meet the requirements. In particular, Woodard urges firms to have in place:

– clear guidelines for supervisors to follow, including a variety of examples of how to handle specific situations;

– a specific, standardized process that applies to everyone;

– procedures for tracking and following up on outstanding inquiries;

– guidelines for acceptable timely resolution; and

– specific procedures and disciplinary measures for unresolved or repeat issues.

Furthermore, it’s critical for firms to regularly documenting all of their efforts in this area, Woodard said.

“Documentation is always important, because that is your evidence,” he said. “That shows us, it shows head office compliance, it shows a court of law that you actually did what you say you’re doing.”

Another area where the MFDA is seeing deficiencies is Know Your Client documentation, according to Woodard. He said the association still sees incomplete and inconsistent KYC information; as well as questionable KYC updates, including changes to clients’ risk profiles that are apparently made to suit specific transactions.

Woodard noted that the MFDA has recently seen an increase in the number of client complaints, mainly related to suitability concerns. But he said this is not surprising given the recent market volatility.

“It’s understandable given the decline in markets.”