Some members of the Mutual Fund Dealers Association are not living up to their obligations to create an effective compliance capability, according to a notice released today by the MFDA.

MFDA rules require fund dealers to establish, implement and maintain policies and procedures to ensure that its business is handled in accordance with the rest of the MFDA rules.

Today’s notice is a reminder that firms’ duties extend to all directors regarding corporate governance, and to all officers of the firm regarding their areas of management responsibility. It advises that dealer’s policies should reference those responsibilities and that firms should ensure their officers and directors are aware of their respective responsibilities.

Firms are also required to designate a trading officer as a compliance officer who is, or reports to, a member of senior management. The compliance officer is responsible for monitoring adherence to all MFDA and securities legislation requirements. Some of these tasks may be delegated, but not the requirement to monitor compliance.

The compliance officer must report to the firm’s board, at least annually. As well, the board must act on all such reports and rectify any compliance deficiencies that have been noted.

The notice states that, “in a number of compliance examinations completed to date, MFDA staff observed that the reporting required had not been completed.” It stresses that the board of directors, senior management and compliance officer must have procedures in place to ensure that these reports are made.

The notices states that, at a minimum, dealers’ policies and procedures manuals should clearly outline supervisory requirements and direct how these functions are to be completed.

The notice also outlines some of the requirements that must be satisfied in order to provide a basic level of supervision, including: good record keeping; ongoing sales compliance reviews; recording complaints; keeping up to date with recent regulatory developments; and, offering educational programs to staff and reps that include training on recent changes to the regulatory environment, new procedures and common issues.