Regulators release guidance regarding complaint handling by registrants

On December 7, the Canadian Securities Administrators, the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada jointly published CSA Staff Notice 31-351, IIROC Notice 17-0229 and MFDA Bulletin #0736-M (the Notice), which addresses certain issues surrounding how registered firms are operating their complaint-handling systems and the use of services offered by the Ombudsman for Banking Services and Investments (OBSI).



Requirements

National Instrument 31-103 – Registration Requirements, Exemptions and Ongoing Registrant Obligations (NI 31-103) requires a registered firm to ensure OBSI services are made available at the firm's expense to resolve complaints made by clients about the trading or advising activity of the registered firm or its representatives. 

Enforcement

Although a recommendation from OBSI is not binding on a registered firm, OBSI is mandated to publicize information relating to these cases on its website.

The Notice states that staff will not assume there is a compliance issue with every registered firm that does not comply with an OBSI recommendation, nor will staff commence a review of the registered firm in every case. However, where warranted, staff may contact a registered firm to discuss concerns and, in some instances, may commence a more formal compliance review (for example, where a registered firm has shown a pattern of either refusing to compensate clients after recommendations by OBSI or settling matters at discounts from OBSI’s recommendations).

Tips

The Notice indicates that to abide by NI 31-103 requirements, registered firms should avoid the practices listed below:

  • failing to communicate the availability of OBSI’s services to the client within the required timeframes;

  • communicating inaccurate information about OBSI’s services to clients;

  • not having policies and procedures in place that inform clients on how their complaints can be directed to OBSI;

  • coercing clients to refrain from using OBSI’s services;

  • persuading a client to accept any offer; and

  • being uncooperative during OBSI’s investigation of a complaint.

Internal ombudsmen

Although a registered firm using an internal ombudsman is not prohibited, an internal ombudsman can not be used as an alternative for OBSI – OBSI must be made available even if a client has pursued a complaint with the internal ombudsman.

The Notice states that if a registered firm uses an internal ombudsman then the registered firm should clearly indicate to clients a number of points, including:

  • the internal ombudsman is employed by the firm and, unlike OBSI, is not an independent dispute resolution service;

  • 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 complaining to the firm;

  • if a client is not satisfied with the firm’s decision, the client may immediately submit a complaint to OBSI without going to the internal ombudsman, and the client has 180 days after receipt of the firm’s decision to submit its complaint to OBSI; and

  • using the firm’s internal ombudsman process is voluntary and statutory limitation periods continue to run while an internal ombudsman reviews a complaint.

Registered firms should review the Notice in detail and determine whether any updates are required to their policies and procedures manuals and/or client communications as a result of the guidance provided in the Notice.

The author thanks articling student Monica Wong for her assistance in preparing this legal update.

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