Securities Regulators Highlight Concerns with Complaint Handling Systems

December 19, 2017

The Canadian Securities Administrators (CSA), Investment Industry Regulatory Organization of Canada (IIROC) and Mutual Fund Dealers Association of Canada (MFDA) have together provided guidance with respect to registered firms’ complaint handling systems in the recently published CSA Staff Notice 31-351, IIROC Notice 17-0229, MFDA Bulletin #0736-M Complying with requirements regarding the Ombudsman for Banking Services and Investments (OBSI). The Staff Notice highlights concerns observed by the regulators.

  • CSA Staff will note when a registered firm is involved in a refusal case or a pattern of settling for amounts lower than OBSI recommendations and believes that this information can provide evidence of problematic complaint handing practices. This may also call into question whether a firm is participating in OBSI’s services in good faith or consistently with the applicable standard of care.
  • Examples of potential complaint handling failures are provided, including among others:
    • Misrepresenting OBSI’s services in communications with a client.
    • Pressuring clients to not use OBSI’s services and/or to accept any offer.
    • Not fully cooperating with OBSI’s investigation.
  • Where Staff come to the conclusion that a firm has breached securities laws, potential regulatory responses include:
    • Recommending terms and conditions on the firm’s or individual’s registration to mitigate risks in the area of concern.
    • Initiating an enforcement investigation.
  • While registered firms may use an internal ombudsman, OBSI’s services must still be made available. Firms should be careful not to mislead clients into thinking that they must use the internal ombudsman before using OBSI’s services as doing so would be inconsistent with the requirements of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) and SRO rules. When using an internal ombudsman, registered firms should clearly indicate (with at least equal prominence to information about the internal ombudsman), among other things that:
    • The internal ombudsman is not independent and is employed by the firm.
    • The client may submit a complaint to OBSI without going to the internal ombudsman if the firm has not provided the client with a written notice of its decision within 90 days of the client’s complaint to the firm.
    • The client has 180 days from the date of the firm’s decision to submit the complaint to OBSI if the client is unhappy with the firm’s decision.
    • OBSI’s services are free.

Background

As required by NI 31-103, registered firms must make independent dispute resolution services or mediation services available to their clients who have complaints. Firms outside of Quebec must ensure that OBSI will be the service made available. The AMF has its own dispute resolution services. IIROC and the MFDA have comparable requirements. CSA Staff provided guidance to assist registered dealer and advisers with their dispute resolution obligations in Staff Notice 31-338 Guidance on Dispute Resolution Services – Client Disclosure for Registered Dealers and Advisers that are not Members of a Self-Regulatory Organization (May 1, 2014) previously discussed here.

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