2010 BCSECCOM 325

Panel	Brent W. Aitken	Vice Chair
	Bradley Doney	Commissioner
	David J. Smith	Commissioner
Date of hearing	April 23, 2010
Date of ruling	June 9, 2010
Appearing
Shayne Strukoff	For Partners in Planning Financial Services Ltd.
Gordon Johnson	For Mutual Fund Dealers Association of Canada
Alan E. Keats	For the Executive Director

• the board was unlawfully constituted after the December 2008 annual general meeting because the two public directors who had reached their term limits improperly continued to act as directors,

• the participation by one of those directors on the governance committee and the task force was a conflict of interest because only through the proposed amendments could he be eligible for re-election, and

• the MFDA improperly pressured members to provide proxies for the meeting through the participation of compliance staff in the proxy solicitation process.

“14 Section 27(1) says

27(1) If the commission considers it to be in the public interest, the commission may make any decision respecting the following:

(a) a by-law, rule, or other regulatory instrument or policy, or a direction, decision order or ruling made under a bylaw, rule or other regulatory instrument or policy, or a self regulatory body . . . ;

(b) the procedures or practices of a self regulatory body . . . .

18 In our opinion, it is not necessary to consider whether Partners is entitled to a hearing and review under section 28(1), because the application raises sufficient public interest concerns that the Commission ought to hear it under section 27(1).
. . .
19 We have formed no opinion on whether the public directors who had reached their term limits were nevertheless entitled to act as directors, whether any of the conflicts of interest alleged by Partners existed, or whether any aspects of the MFDA’s proxy solicitation process was improper. However, the answers to these issues may well bear on the integrity of the MFDA’s governance practices, and could ultimately affect the credibility of the MFDA as an institution.

20 The MFDA says that whatever concerns there may be about the process by which the by-law amendments were passed, or the content of the by-law itself, can be addressed during the Commission staff review of the by-law, which is required before the by-law can come into effect.

21 We disagree. The system of securities regulation we have in Canada depends on the roles played by regulatory organizations like the MFDA. It is essential that those organizations operate, and are seen to operate, in a manner that leaves no room to question the integrity of their governance, procedures and practices. It is equally essential that any allegations that could raise those questions be dealt with thoroughly and openly.

22 For these reasons we decided to hold a hearing under section 27(1) to consider Partners’ application.”

• the MFDA has suspended the implementation of the by-law amendments pending a review by its governance committee, which will also review the MFDA’s conflict of interest policy and its practices in soliciting proxies

• whether the two public directors who continued to act as directors after their term limits expired were entitled to do so is not a matter of policy, but of legal interpretation, and in any event is moot because both of them are no longer MFDA directors

• the board’s process leading to the recommendation to amend the by-laws is no longer relevant because the board composition has significantly changed with the resignation of some directors and the election of new ones, because the director whose participation on the task force was impugned is no longer an MFDA director, and because the by-law amendments will be subject to the review process described above

• it is not necessary to consider the practices employed by the MFDA in soliciting proxies for the October 2009 meeting because a survey of members suggest there was no improper pressure applied by the MFDA to its members and in any event its proxy-solicitation procedures are subject to the review described above

“If you were contacted, please provide the following details:

Who contacted you?

When?

How were you contacted?

Describe any discussions about the October Meeting.

Was your firm’s decision to participate or vote (or not) at the October Meeting affected by contact with the MFDA?

If yes, describe how your participation was affected.”

1. The MFDA’s decision-making process and reasoning that led to its conclusion that it was appropriate for the two public directors whose terms had expired at the December 2008 annual general meeting to continue as directors.

2. The MFDA’s decision-making process and reasoning that led to its conclusion that it was appropriate for one of the public directors whose term had expired at the December 2008 annual general meeting, and who continued as a director, to continue as a member of the governance committee and become a member of the task force.

3. The details of contacts made by the MFDA with its members in connection with the October 2009 special meeting, including which MFDA representatives contacted which members, and sufficient other information about the proxy solicitation process that will enable us to assess whether the MFDA’s conduct was appropriate.