MFDA fines and suspends advisor who borrowed from a clientpar Andrew Rickard | October 25 2016 11:30AM
The Mutual Fund Dealers Association (MFDA) has fined and suspended an advisor who borrowed money from a client. While the loans were repaid in full and there was no complaint from the client, the regulator says the advisor still failed to disclose her conflict of interest, and also failed to co-operate in the investigation.
In a decision released yesterday, the MFDA ordered Lisa Hua Deng Huang to pay a $50,000 fine and costs in the amount of $7,500 after she borrowed money from a client. She is also prohibited from conducting any securities-related business for the next ten years.
She borrowed $380,000 from the client
Huang worked for the Royal Bank of Canada (RBC) as a financial planner and was registered as a salesperson with Royal Mutual Funds. In November 8, 2012, she borrowed $380,000 from the client. This was a short-term loan, without interest, and it was fully repaid in about a week. A few months later she borrowed another $75,000 from the same client, also for a short term without interest, and it too was repaid in full on its due date.
The MFDA says there is no doubt that there is always a conflict of interest between a borrower and a lender. What is unique about this case is that there was no client loss and no client complaint.
Not able to rely on any jurisprudence
While the regulatory panel was not able to rely on any jurisprudence which deals with loans where there was no harm done to the client, it did refer to MFDA Staff Notice – 0047 (October 3, 2005) which states that borrowing from a client raises a significant and direct conflict that in almost all cases will be impossible to resolve in favor of the client.
"While it [MFDA Staff Notice 0047] is an expression of Staff’s opinion rather than an extract from jurisprudence, it seems to us to correctly emphasize the problems created by taking loans from clients," reads the decision signed by MFDA Hearing Panel chairman Patrick Galligan and industry representatives Brigitte Geisler and Selwyn Kossuth. "We subscribe to that opinion."
In breach of her duty to co-operate
After Huang failed to reply to emails and provide the regulator with information it had requested, the MFDA ruled that she was also in breach of her duty to co-operate in its investigation. Huang did not appear at the MFDA hearing, nor was she represented by counsel. According to the decision, she is no longer employed by RBC.