Advice leads to tax penalty for client and sanction for dealing representative

A hearing panel of the Canadian Investment Regulatory Organization (CIRO) has published its reasons for sanctioning Seongho (Steve) Park, a North Vancouver dealing representative formerly with BMO Investments Inc. Park is currently registered with Royal Mutual Funds Inc.

Between August 2016 and May 2017, Park agrees he opened a tax-free savings account (TFSA) and processed two mutual fund purchases for a client who he knew to be a non-resident of Canada. He first met with the client in August 2016, at which time he reviewed the client’s identification on file with BMO, which included a U.S. Permanent Resident Card. Park submitted the requisite paperwork to open a TFSA for the client, which included an address in North Vancouver, British Columbia.

The two transactions he processed for the client included a $46,500 contribution to purchase a BMO portfolio product and a $5,500 contribution to invest in another of the company’s balanced portfolio products. In October 2019, the firm locked the TFSA on instructions from the Canada Revenue Agency (CRA) after the CRA imposed a tax penalty on the client for holding and contributing to a TFSA while being a non-resident of Canada.

“Had the respondent ensured that SD’s primary address was accurately recorded or updated in her account information, the member’s controls and supervisory processes would likely have detected that SD, as a non-resident of Canada, was not eligible to open a TFSA or purchase investments through the member,” the reasons for decision states. The company’s mutual funds were not registered for sale outside of Canada.

“The respondent’s failure to know the client and properly record SD’s know your client (KYC) information were serious contraventions. His opening of an investment account for a U.S. resident without having adequate training, proficiency or experience to advise the client on the regulatory implications of investing in Canada, and inaccurately recording SD’s true country of residence when the respondent had her U.S. Permanent Resident Card, prevented the member from supervising and applying its policies and procedures to the circumstances and led to the client incurring a Canadian tax penalty.” 

BMO offered to compensate the client to cover the penalty, which the client accepted.

Park was fined $10,000 by CIRO and assessed costs in the amount of $5,000.