Joint notice from CSA, IIROC, and OBSI outline concerns about registered firms’ internal complaint-handling systems
Following investor groups’ repeated criticisms of firms’ complaint-handling processes, Canada’s securities regulators and self-regulatory organizations are putting their foot down.
In a joint staff notice, the Canadian Securities Administrators (CSA), the Investment Industry Regulatory Organization of Canada (IIROC), and the Mutual Fund Dealers Association of Canada (MFDA) highlighted concerns raised about some registered firms’ complaint handling systems, and how some firms participate in the services offered by the Ombudsman for Banking Services and Investments (OBSI).
“A fair and effective independent dispute resolution service is important for investor protection in Canada and is vital to the integrity and confidence of the capital markets,” they said in the notice.
In the notice, staff emphasized that firms registered with either IIROC or the MFDA, including those registered in Québec, are required to be members of OBSI.
A major area of concern, the notice said, is the manner in which some firms use an internal ombudsman within their complaint-handling system. While the regulators acknowledged that NI 31-103 does not prevent firms from using one, they stressed that an internal ombudsman should not be held out as an “alternative” to OBSI, and OBSI must be made available even if a client has pursued their complaint with the internal entity.
“In some cases, it appears that clients are not being given the clear option of using OBSI’s services in the timeframes contemplated by NI 31-103 … [T]hey are [effectively] being diverted to an internal ombudsman while the time limits for submitting the complaint to OBSI or commencing a civil action continue to run,” the notice said.
Practices that mislead complainants into thinking that the internal ombudsman must be accessed before OBSI, the regulators said, would be inconsistent with NI 31-103 and SRO rules requiring that OBSI be made available to clients no later than 90 days after a complaint was received.
Complainants also have a 180-day time limit to access OBSI’s services after they receive a firm’s decision, which continues to run out even as the internal ombudsman process takes it course. The statutory limitation periods for clients to seek redress in the courts, the notice added, also continue to run during the internal ombudsman process.
“Ultimately, investors may not be fully aware of their options or may get worn down by this extended process and abandon their claims, or settle for less than they may have obtained had they gone directly to OBSI after receiving the firm’s decision concerning their complaints,” the notice said.
In communications with complainants, the notice said, it is important for firms to clearly disclose various pieces of information.
Among those are the fact that an internal ombudsman not an independent dispute resolution service, the client may submit a complain to OBSI without going to the internal ombudsman if they don’t receive a written notice of the firm’s decision within 90 days of the client complaining to the firm, and the client may complain directly to OBSI within 180 days of receiving a firm’s decision if they’re not satisfied.
“It is never an acceptable practice for a firm to operate its complaint handling system in a manner in which investors are being misled or worn down,” the notice said.
And while it acknowledged that OBSI’s compensation decisions do not carry binding authority, regulators emphasized their view that repeated settlements for amounts lower than those recommended by OBSI or refusals to compensate clients consistent with OBSI recommendations can sometimes be a risk-based indication of problems with a firm’s complaint-handling process.
Aside from routinely taking note of public information about registered firms, including refusal cases, the regulators said they receive information from other sources such as the OBSI Joint Resolution Committee (JRC). Based on certain patterns, they said, they may conclude that a firm did not participate in the OBSI process in good faith, or possible did not comply with the applicable standard of care.
“In such cases, we may make enquiries of the firm, which could lead to further actions,” the notice said. Following a formal compliance review that finds shortfalls, the notice said, staff may recommend terms and conditions on a firm or registered individuals’ registration, or initiating an enforcement investigation of the firm or individual concerned.