A hearing panel of the New Self-Regulatory Organization of Canada (New SRO) accepted a settlement agreement between its staff and GP Wealth Capital Management Corporation, over files maintained between 2013 and 2016 by a now terminated approved person.

In the agreement the firm admits that between June 2013 and May 2016 it failed to detect and query uniformity in the know-your-client (KYC) information recorded by the former approved person in question when he transferred 88 leveraged accounts to the firm, opened 23 new leveraged accounts and processed five loan renewals for existing accounts at the firm.

The leveraged investment strategy used in the accounts employed the use of investment loans obtained to purchase return of capital (ROC) mutual funds with deferred sales charges (DSCs). “The leveraged investment strategy was high risk,” the settlement agreement states.

When he transferred to the firm, 86 of the 88 transferred accounts were reviewed and approved for transfer by the same compliance officer between June and August 2013, “with an average of between five and eight accounts reviewed daily,” they write. “At the time the accounts were transferred to the respondent the transferred accounts had nearly identical KYC information.” Compliance staff at the time also identified that the market value of some accounts was less than the outstanding amount of the client’s investment loans. 

Between August 2013 and November 2016 when he was terminated, the firm opened 23 new leveraged accounts and approved five loan agreements for accounts serviced by the representative. “Nearly all of the new leveraged accounts had the same KYC information,” the agreement repeats. The uniformity was discovered during a Mutual Fund Dealers Association of Canada (MFDA) compliance examination. As of late 2019, the firm’s back-office system is now capable of automatically identifying patterns with KYC uniformity.”

In the settlement agreement the firm agreed to pay $20,000 plus $5,000 in costs.