(Updated March 4, 2013)
This notice is being issued to remind Members of the requirement to review websites of their Approved Persons to ensure compliance with MFDA Rules.
Background
Through compliance examinations performed to date, MFDA staff has become aware of websites of Approved Persons of MFDA Members that are not in compliance with MFDA Rules. In many cases, these websites reference or promote Member business. However, the Member is either unaware of the existence of the websites or has not reviewed and approved the websites in accordance with the requirements of MFDA Rule 2.7.3 (Advertising and Sales Communications-Review Requirements). Other common deficiencies identified during compliance examinations with respect to these websites include the following:
- There is no disclosure of the Member’s name on the website although Member business is promoted;
- The websites promote products or services that the Approved Person is not licensed or qualified to sell;
- There is no disclosure with respect to the products and services that are sold through the Member and are the responsibility of the Member and which products and services are being offered as an outside business activity of the Approved Person;
- Misleading advertisements (e.g. performance measurements or qualifications or proficiency of Approved Persons).
Requirement to Approve Websites of Approved Persons that Promote Member Business (Rule 2.7.3)
MFDA Rule 2.7.3 requires that all advertisements and sales communications be approved by a designated partner, director, officer, compliance officer or branch manager before they are issued. The definition of “advertisement” in Rule 2.7.1 includes all communications media, including internet websites, that promote the business of the Member. Accordingly, Members are required to approve websites of Approved Persons that reference or promote Member business. In particular, Members must ensure that such websites comply with the general restrictions set out in Rule 2.7.2 regarding false or misleading advertisements and sales communications.
Requirement to Review Websites of Approved Persons for Compliance with MFDA Rules
Members should review websites of their Approved Persons to ensure compliance with MFDA Rules and all other applicable legislation, including the following:
- Requirement that all securities-related business as defined in MFDA By-law No. 1 be carried on for the account of the Member through the facilities of the Member, except as otherwise provided in the Rules (Rule 1.1.1);
- Requirements with respect to dual occupations set out in Rule 1.2.1(c), in particular:
- the requirement for Member approval of outside business activities promoted on the website (Rule 1.2.1(c)(iii));
- disclosure on the website of the products and activities that are being offered through, and are the responsibility of the Member and which products and services are being carried on as outside business activity (Rule 1.2.1(c)(vi));
- requirements with respect to financial planning (Rule 1.2.1(c)(vii));
- Requirements with respect to business names under Rule 1.1.7, and in particular the requirement to disclose the Member’s name where a trade name of an Approved Person is used in connection with Member business (Rule 1.1.7(c));
- Requirements with respect to business titles which prohibits the use by Approved Persons of any business name or designation of qualifications or professional experience that deceives or misleads or could reasonably be expected to deceive or mislead, a client or any other person as to the proficiency or qualifications of the Approved Person (Rule 1.2.1(d)).
Policies and Procedures
Under MFDA Rule 2.5.1 (Member Responsibilities), there is a general requirement for Members to have policies and procedures and internal controls in place to ensure the handling of its business in accordance with MFDA By-laws, Rules, Policies and with applicable securities legislation.
Members should ensure that such policies and procedures include: (i) a specific process for the review of websites of Approved Persons for compliance with applicable requirements as set out above; and (ii) an approval process for websites of Approved Persons that reference or promote Member business in accordance with MFDA Rule 2.7.3. In particular, these policies and procedures should include the following:
- Policy that requires Approved Persons to notify Members of websites;
- Procedures to review websites upon notification and on an ongoing basis, for compliance with MFDA Rules and applicable legislation;
- Policy requiring the approval of all websites of Approved Persons that reference or promote Member business;
- Authorization process for new websites that reference or promote Member business and any documents referencing or relating to Member business posted on websites;
- Authorization process for any subsequent changes or additions to websites referencing or relating to Member business;
- Process for communicating to Approved Persons requirements relating to the approval of websites;
- Procedures for taking corrective action where non-compliant websites are identified; and
- Process for evidencing review and approval of websites of Approved Persons in accordance with MFDA Rule 2.5.7.