The B.C. Securities Commission has criticized the Mutual Fund Dealers Association of Canada for mishandling a controversial 2009 vote by its members on changes to rules for electing its board of directors.
In a ruling released Wednesday, a BCSC panel said the self-regulatory organization for the mutual fund industry should not have asked staff and directors to contact the association's members and ask about their voting intentions before the vote in October, 2009.
The ruling said the MFDA knew that the matter was controversial, and the association should have understood that some fund companies would feel pressured to support its position because they might not want to risk offending their regulator.
"It would have presented an awkward set of choices to members inclined to vote against the amendments but uncomfortable about disclosing their voting intentions," the BCSC panel wrote.
The panel has set aside the 2009 vote and ordered the MFDA to call a new meeting to vote again on the bylaw amendments. The vote was on extending term limits for public directors on the board, and changing eligibility requirements for public directors.
MFDA chief executive officer Larry Waite said the board will meet next week and decide whether to appeal the ruling. "We are in the process of reviewing the BCSC decision with counsel and have no further comment at this time," he said Wednesday.
The BCSC case was launched in 2009 after a complaint about the voting process from an MFDA member, Partners in Planning Financial Services Ltd.
The firm withdrew its complaint last year, saying it was satisfied with the MFDA's proposals to reform its voting rules, but the commission said in June it would still hold a hearing.
The BCSC said the complaint had impugned the MFDA's credibility, which could be undermined if the issues weren't addressed.
At the hearing, the MFDA argued it contacted members only to ensure a good turnout and did not intend to sway the vote. But the BCSC panel rejected that, saying it believed the MFDA was trying to identify supporters and urge them to vote. "If the directors were interested only in getting out the vote, why would they care about the member's voting intentions?" the panel asked.
The panel's decision orders the MFDA to change its proposed rules on future votes, saying the proposed proxy process does not address concerns raised in the case. It said the policy should ensure directors and employees are not allowed to contact members to solicit votes and should require votes to be tabulated secretly so MFDA staff don't know how individual members voted.
The BCSC ruling supported the MFDA on another matter under review, which involved a decision to extend the terms of two directors in early 2009 even though bylaw amendments had not been approved allowing for the terms to be extended. The panel said the decision was reasonable because the MFDA planned to have a vote for new directors later that year, and its lawyers advised it was acceptable to keep the directors in place until then.