Mutual fund dealer Keybase Financial Group Inc., has admitted in a settlement with regulators that it failed to properly address client complaints about a leveraging strategy promoted by some of its reps.
A hearing panel of the Mutual Fund Dealers Association of Canada (MFDA) approved a settlement with Richmond Hill, Ont.-based Keybase that will see the firm pay a $35,000 fine and $5,000 in costs to resolve allegations that it violated the self-regulatory organization’s (SRO) rules with deficient complaint handling.
According to the settlement, the firm has also paid over $245,000 to compensate clients who lost money due to a failed leveraging strategy, and offered another $71,000 in compensation to another client.
The has spent $289,000 on consultants that helped it fix the weaknesses in its compliance procedures, including its complaint handling practices.
“Keybase now has adequate complaint handling procedures,” the settlement notes. It also said that the firm cooperated with the MFDA’s investigation.
That investigation found that Keybase failed to properly deal with 13 client complaints about a leveraged investing strategy that reps had recommended, but that had failed during the global financial crisis, leaving the clients with investment losses.
Among other issues, complaints involved the suitability of the strategy and inaccurate KYC information.
The SRO’s subsequent investigation into the firm’s handling of those complaints found that it failed to deal with 13 complaints fairly by failing to consider suitability issues, disregarding concerns about inaccurate KYC information, and not considering whether there was a pattern of misconduct as a factor in assessing the complaints.
It also found that the firm took too long to provide responses to seven of the complaints — ranging from seven months to three years — and that it ultimately issued inadequate responses.
After receiving additional complaints about the strategy in 2018, Keybase voluntarily hired an independent consultant to help improve its complaint handling.