Contact:
Paige Ward
General Counsel and Vice-President, Policy
Phone: (416) 943-5838
Email: [email protected]
MSN-0008
March 16, 2001
MFDA STAFF NOTICE
POLICIES AND PROCEDURES MANUAL
MFDA Staff Notices are intended to assist Members and their Approved Persons in the
interpretation, application of and compliance with requirements under MFDA By-laws and
Rules. Notices make reference to these requirements and set out MFDA staff's interpretation of
how to comply with these requirements. Notices may also include best practices or guidance.
MFDA Rule 2.10 requires each Member to establish and maintain written policies and
procedures, approved by senior management, for dealing with clients and ensuring compliance
with the Rules, By-laws and Policies of the MFDA and applicable securities legislation. These
policies and procedures must be set out in a Policies and Procedures Manual (“PPM”), which
may be maintained in electronic form. The Member’s current PPM must be made available to all
sales and supervisory personnel and maintained at head office and all branch offices. This notice
provides guidelines to Members regarding the topics that should be covered in a PPM.
The PPM must establish detailed operational and administrative policies and procedures to
monitor, review and ensure compliance with regulatory requirements. Therefore, the manual
should, at a minimum, include the following topics:
Compliance Function and Process

Explain the compliance function and process within the Member. This should include: the
objectives of the compliance function and risk management in general; a discussion of the
applicable legislation; the designated role of compliance officers and their authority,
responsibility and accountability for compliance; the process for communicating relevant
legislative requirements to the Member’s business units and sales and supervisory staff;
procedures for monitoring and evaluating compliance practices; and internal investigation
procedures with respect to compliance and control issues.
Branches and Sub-branches

Explain and document policies and procedures relating to the regulatory requirements,
organization, administration and operation of branches and sub-branches and the role and
responsibilities of branch managers.
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Registration Requirements

Explain and document policies and procedures for registration and renewal of registration for
Approved Persons under applicable securities legislation.
Dual Occupations

Explain and document policies and procedures relating to the outside business activities of
Approved Persons, including procedures to obtain the approval of the Member and disclosure
requirements for communications with clients to clarify that any outside activities carried on
by Approved Persons are not being offered by, and are not the responsibility of, the Member.
Trade Names

Establish procedures to ensure that the requirements set out in MFDA Rule 1.1.7 regarding
the use of business style or trade names are being complied with. In particular, with respect
to Approved Persons operating under their own trade name, ensure the relevant requirements
have been met, such as prior approval by the Member, notification to regulators and use of
the trade name in conjunction with the Member’s name.
Client Accounts
New Accounts

Explain and document policies and procedures for dealing with new client accounts. This
should cover “know your client” and “suitability of trades” guidelines and requirements,
the approval and review of new accounts and the update of documentation upon changes
in client circumstances.
Account Types

Explain and document policies and procedures relating to the special requirements,
documentation and authorizations needed for different types of client accounts (e.g. trust
accounts, registered accounts and joint accounts).
Account Supervision

Explain and document policies and procedures to properly supervise client account
activity at both the head office and at the regional and branch level.
Account Transfers

Explain and document policies and procedures with respect to account transfers and the
process to be followed after client authorization is obtained or received.
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Money Laundering

Explain and document policies and procedures to ensure compliance with money
laundering legislation. In particular, the policy should set out the specific records that
must be obtained on account opening and maintained in accordance with the legislative
requirements, and include procedures for verifying the identity of clients and handling
and reporting suspicious activities and transactions.
Transaction Processing

Explain the process that must be followed to execute securities transactions and provide
samples of the required documentation.
Business Conduct
Advertising, Sales Communications and Other Client Communications

Explain and document a policy relating to advertising, sales communications and other
client communications, which includes procedures for the review and approval of
advertisements and sales communications, and policies regarding the use of rates of
return in client communications.
Complaints

Explain and document procedures for handling client complaints, including the
maintenance of a complaint log.
Referral Arrangements

Explain and document procedures to ensure compliance with MFDA Rules regarding
referral arrangements, which should include: maintaining a list of entities and/or other
Members with whom the Member has entered into referral arrangements; documenting
referral arrangements (i.e. maintaining written agreements and recording fees and
compensation on the books and records of the Member); disclosure obligations to clients
and a process for the approval and review of new referral arrangements.
Limited Trading Authorizations

Explain procedures relating to the acceptance and use of limited trading authorizations by
Members and Approved Persons.
Borrowing for Securities Purchases

Explain policies and procedures relating to client borrowing for securities purchases,
including the delivery of risk disclosure documents to clients, appropriate client
circumstances for recommending the purchase of securities by borrowing, required
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information to be maintained in the client file and procedures for reviewing leveraged
trades.
Conflicts of Interest

Explain policies and procedures to identify and address conflicts or potential conflicts
arising in connection with business conducted by Members for clients.
Capital Requirements

Explain and document procedures for ensuring compliance with minimum capital
requirements under MFDA Rules, which should include relevant definitions (e.g. “risk
adjusted capital”), sample calculations, guidelines regarding the preparation of financial
statements and methods to communicate, both internally and externally, situations where the
Member is operating close to early warning levels.
Bonding and Insurance

Explain and document policies to ensure compliance with bonding and insurance
requirements under MFDA Rules. Such policies should explain relevant definitions (i.e.
“base amount”), required coverage amounts, detailed procedures relating to obtaining and
maintaining bonding and insurance, the identification and claim of insurable losses and the
notification of senior management of the Member and the MFDA of claims.
Dealer Trust Accounts

Explain and document policies regarding the operation and maintenance of dealer trust
accounts for cash held by Members on behalf of clients.
Books and Records

Explain and document policies and procedures relating to record keeping requirements under
MFDA Rules and applicable legislation, and the storage, retention and destruction of such
records.
DM#329362
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