Responsibilities of dealers engaging third party service providers clarified

Date: Wednesday, July 6, 2005
Author: Investmentexecutive.com

The Mutual Fund Dealers Association of Canada clarified Wednesday the obligations of its members who enter into introducing/carrying arrangements or engage third party service providers.

Under MFDA rules, dealers have an obligation to ensure that services provided by any third party allow for the firm to comply with its by-laws and rules. And MFDA members that act as introducing dealers are jointly responsible with carrying dealers for compliance regarding services provided by the carrying dealer.

MFDA staff are aware of instances in which dealers have engaged third party service providers to develop and install back office and other systems that "do not provide the functionality required to meet regulatory requirements."

The MFDA said in a notice that "members that choose to enter into introducing/carrying arrangements or engage outside service providers must satisfy themselves that the services will meet all applicable regulatory expectations. Members must consider these obligations when performing their due diligence investigations prior to entering into such arrangements."

If a dealer discovers that any existing outsourced services do not comply with regulatory requirements, "any such deficiencies should be immediately rectified," it says. "In the event that any significant period of non-compliance is likely to occur before the problem can be remedied, the member must notify the compliance department of the MFDA of the concerns and advise as to the member’s proposed solution."