The Mutual Fund Dealers Association (MFDA) has ordered Sun Life Financial Investment Services to pay a fine of $50,000 and costs of $20,000 for failing to properly supervise its sub-branches.
In a settlement agreement released on July 29, the MFDA noted that its members are generally expected to perform on-site reviews no less than once every three years. The regulator has fined Sun Life for having failed to conduct and document regular reviews of its 800 sub-branches; these are locations that contain three or fewer advisors and which do not have a branch manager on site.
"Between July 24, 2006 and June 2014, the Respondent did not conduct an on-site compliance review of every sub-branch location at least once every three years, in accordance with MFDA Policy No. 5," reads the document. "In particular, the Respondent did not visit all of its sub-branches, interview a selection of advisors from each sub-branch, or review client files at each sub-branch."
Of particular concern to the MFDA was Sun Life's failure to adequately supervise Thomas Bulloch, one of its representatives who (without Sun Life's knowledge or approval) referred clients to invest in Seaquest Capital between late 2007 and 2011. Seaquest went bankrupt, and the clients lost about $2 million; the MFDA notes that there is no reasonable prospect of these investors ever recovering their money. The regulator suggests that if Sun Life had conducted an on-site compliance review of Bulloch’s sub-branch, they might have discovered this unapproved activity. As for Bulloch, the MFDA permanently banned him from the mutual fund business in 2014.
The MFDA points out that in June of last year, Sun Life provided an adequate action plan to address these supervisory concerns, "including enacting enhanced policies and procedures regarding its branch review program, utilizing a risk based program to ensure that all branch and sub-branch locations are visited within a three year cycle, and tracking and reporting on-site visits."