The New Self-Regulatory Organization of Canada (New SRO) has issued its reasons for fining Queen Financial Group Inc. for compliance failings. Although the regulator states that there is no evidence that the misconduct resulted in financial harm, and no clients have submitted complaints, it still fined the firm $30,000 and ordered it to pay costs totalling $7,500.
Stemming from a sales compliance examination, the New SRO’s reasons for decision states that Queen Financial did not complete adequate due diligence and did not record adequate information to demonstrate its understanding of all material information related to the suitability of the products sold by its approved persons to clients.
Among the compliance deficiencies identified, the firm did not complete adequate due diligence during the process of approving seven products for sale, two of which had a unique and complex structure that promised investors an indirect interest in high-profile companies that were not publicly traded at the time the products were approved for sale.
The firm reportedly failed to assess, determine and document the product’s investment objectives, compensation, any conflicts of interest associated with some of the products, costs to investors, any methodology for determining valuations and the liquidity limitations related to some of the investments held in the products.
Registered as a mutual fund dealer in Ontario since October 2006, and in British Columbia off and on since February 2008, the firm was also registered as a limited market dealer or exempt market dealer in Ontario, British Columbia, and Quebec at different times. The firm’s head office is in Markham, Ontario. It also operates two additional offices in Richmond, British Columbia and St. Laurent, Quebec.
“Based on the amount of assets under its administration, the respondent is a small mutual fund dealer compared to other members of the Mutual Fund Dealers Association of Canada (MFDA),” the New SRO notes. In July 2022 the firm hired a new compliance officer with specific experience in exempt market products.
In its reasons for decision, the regulator cites Know Your Product staff notices which state that in all cases, the approval process for products must be independent and objective. “Member procedures should provide for different levels of analysis for different types of products,” they write. “A more comprehensive review should be performed on products that are novel or more complex in structure.”
They also say that firms should not merely rely on representations of the issuer or on the fact that the product appears to be similar to others. “A basic level of due diligence must be completed on all products being considered for sale by the member before the products are approved.”