Securities inspections
The AMF inspects and oversees the individuals and entities registered with it in the following categories:
- Mutual fund dealers
- Scholarship plan dealers
- Exempt market dealers
- Portfolio managers
- Derivatives portfolio managers
- Investment fund managers
- Investment dealers
- Restricted dealers
- Restricted portfolio managers
- Development capital investment funds
Inspection fee
The inspection fee is determined by the Securities Regulation and is revised on an annual basis. As of January 1, 2023, the fee was $109 per hour. The inspection fee covers the preparation and planning of an inspection, the on-site visit, the subsequent analyses at the AMF’s offices, the preparation of the inspection report, and the review of the case by an inspection co-ordinator. Once the response to the inspection report is received and analyzed, the case is usually closed and the invoice issued.
Scope of inspection
The scope of the inspection may vary depending on the type of inspection. The inspection could focus on:
- General and financial contrul environment:
- Organizational structure, compliance with regulatory requirements
- Supervision, business continuity, outsourcing, complaint management
- Identification and management of conflicts of interest
- Safekeeping of assets, financial position, administration
- Client relations and record-keeping:
- Know your client, know your products
- Suitability
- Transactions
- Account statements and marketing practices (for dealers and managers, for example)
- Activities specific to registration categories
- Dealers:
- Supervision of representatives and oversight of branches
- Delivery of trading information
- Knowledge of clients’ financial position and leveraging risks
- Portfolio management:
- Compliance with management agreements and investment policies
- Risk management and compliance with specific restrictions
- Supervision of associate advising representatives and sub-managers
- Dealer selection and trade execution
- Fair allocation of investment opportunities
- Monitoring of personal trades and insider trading
- Calculation and presentation of returns
- Investment fund management activities:
- Communication with security holders
- Supervision of portfolio managers
- Fees and expenses charged to funds
- Calculation of net asset values
- Distribution of units
- Calculation of commissions paid to distributors
- Soft dollars
- Securities lending, repurchase and reverse repurchase transactions
Main findings inspections
Most of the AMF’s inspection findings pertained to the following areas: know your client, suitability, business conduct, supervision, and financial position. Those that generated the most frequent findings were:
- Know your client:
- Incomplete new client application forms
- Vague, incomplete or inconsistent investor profiles
- Absence of an appropriate process for demonstrating that staff verified compliance before opening an account
- Absence of an appropriate process for ensuring regular updating of investor profiles
- Suitability:
- Portfolio not consistent with client’s needs and objectives
- Portfolio not consistent with client’s risk tolerance
- False or misleading advertising:
- Exaggerated or unsubstantiated claims
- Failure to properly present the risk associated with a product or strategy
- Missing or unclear references
- Disclosure to clients:
- Description of potential conflicts of interest
- Annual compliance report:
- The report is missing or does not discuss an important topic:
- Performance of oversight functions
- Capital and insurance
- Regulatory reviews and investigations
- Legal and disciplinary proceedings
- Client complaints
- The report is missing or does not discuss an important topic:
- Policies and procedures manual:
- Written procedures are missing, superficial or incomplete:
- Obligation to inform the AMF
- Oversight of financial obligations
- Supervision of commercial practices
- Written procedures are missing, superficial or incomplete:
- Complaint examination policy:
- Incomplete policy:
- Name of person responsible for applying the policy
- Description of a complaint
- Description of complaint handling process
- Description of process for transferring a case to the AMF
- Instructions for sending complaint reports to the AMF
- Incomplete policy:
- Supervision:
- Insufficient supervision of:
- Promotional material
- Tasks requiring registration
- Outsourcing (service agreements)
- Duties related to financial obligations
- Insufficient supervision of:
- Financial position and environment:
- Financial statements are not compliant with regulatory accounting principles
- The auditor’s report that accompanies the financial statements does not comply with Canadian Auditing Standards (CASs)
- The firm does not adequately monitor its working capital